[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46887-46890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18881]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72766; File No. SR-FINRA-2014-035]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Revise the Series 24 Examination Program
August 5, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``SEA'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on July 29, 2014, Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by FINRA.
FINRA has designated the proposed rule change as ``constituting a
stated policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule'' under Section
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is filing revisions to the content outline and selection
specifications for the General Securities Principal (Series 24)
examination program.\5\ The proposed revisions update the material to
reflect changes to the laws, rules and regulations covered by the
examination and to incorporate the functions and associated tasks
currently performed by a General Securities Principal. In addition,
FINRA is proposing to make changes to the format of the content
outline. FINRA is not proposing any textual changes to the By-Laws,
Schedules to the By-Laws or Rules of FINRA.
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\5\ FINRA also is proposing corresponding revisions to the
Series 24 question bank. Based on instruction from SEC staff, FINRA
is submitting this filing for immediate effectiveness pursuant to
Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(1) thereunder, and
is not filing the question bank for review. See Letter to Alden S.
Adkins, Senior Vice President and General Counsel, NASD Regulation,
from Belinda Blaine, Associate Director, Division of Market
Regulation, SEC, dated July 24, 2000. The question bank is available
for SEC review.
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The revised content outline is attached. The Series 24 selection
specifications have been submitted to the Commission under separate
cover with a request for confidential treatment pursuant to SEA Rule
24b-2.\6\
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\6\ 17 CFR 240.24b-2. The Commission notes that the content
outline is an exhibit to the filing, not to this Notice.
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The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Section 15A(g)(3) of the Act \7\ authorizes FINRA to prescribe
standards of training, experience, and competence for persons
associated with FINRA members. In accordance with that provision, FINRA
has developed examinations that are designed to establish that persons
associated with FINRA members have attained specified levels of
competence and knowledge, consistent with applicable registration
requirements under FINRA rules. FINRA periodically reviews the content
of the examinations to determine whether revisions are necessary or
appropriate in view of changes pertaining to the subject matter covered
by the examinations.
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\7\ 15 U.S.C. 78o-3(g)(3).
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NASD Rule 1022(a) (General Securities Principal) requires that a
``principal'' register and qualify as a General Securities
Principal,\8\ unless the person's activities are so limited as to
qualify such person for one or more of the limited categories of
principal registration, such as a Financial and Operations Principal,
an Introducing Broker-Dealer Financial and Operations Principal, a
Registered Options Principal, an Investment Company and Variable
Contracts Products Principal, a Direct Participation Programs
Principal, a General Securities Sales Supervisor or a Government
Securities Principal. The rule does not preclude individuals whose
activities are so limited from registering and qualifying as General
Securities Principals.
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\8\ The term ``principal'' is defined in NASD Rule 1021(b)
(Definition of Principal).
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NASD Rule 1022(a) also requires that a member's chief compliance
officer (``CCO'') designated on Schedule A of the member's Form BD
(Uniform Application for Broker-Dealer Registration) be registered and
qualified as a General Securities Principal. If a member's activities
are limited to investment company and variable contracts products,
direct participation programs or government securities, the member's
CCO may instead be registered and qualified as an Investment Company
and Variable Contracts Principal, Direct Participation Programs
Principal or Government Securities Principal, respectively. In
addition, for purposes of the CCO requirement for members of FINRA that
are also members of the NYSE, FINRA recognizes the NYSE Compliance
[[Page 46888]]
Official (Series 14) examination as an acceptable alternative to the
principal examination requirements for General Securities Principal,
Investment Company and Variable Contracts Principal or Direct
Participation Programs Principal, as applicable.
Pursuant to NASD Rule 1022(a), a General Securities Principal is
not qualified to function as a Financial and Operations Principal, an
Introducing Broker-Dealer Financial and Operations Principal, a
Registered Options Principal, a General Securities Sales Supervisor, a
Municipal Securities Principal or a Municipal Fund Securities Limited
Principal, unless the General Securities Principal is also registered
and qualified in these other categories.
Further, a General Securities Principal is not qualified to
supervise the conduct of a Research Analyst or Supervisory Analyst
engaged in equity research, unless the General Securities Principal has
passed the Regulatory Administration and Best Practices (Series 87)
portion of the Research Analyst examination or the Supervisory Analyst
(Series 16) examination and is registered as a Research Principal.
A person seeking to register as a General Securities Principal must
satisfy the General Securities Representative prerequisite registration
or another acceptable prerequisite registration.\9\ While registration
as a Corporate Securities Representative, Private Securities Offerings
Representative or Investment Banking Representative satisfies the
prerequisite registration requirement for a General Securities
Principal, such a principal will only have limited supervisory
authority consistent with his or her representative category. In
addition, NASD Rule 1022(a) requires that a General Securities
Principal with responsibility over specific investment banking
activities satisfy the Investment Banking Representative registration
requirements, regardless of any other prerequisite registration. A
person registering as a General Securities Principal must also pass the
Series 24 qualification examination or an alternative examination.\10\
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\9\ The other acceptable prerequisite registrations are: United
Kingdom Securities Representative; Canada Securities Representative;
Investment Banking Representative; Corporate Securities
Representative; or Private Securities Offerings Representative. See
NASD Rule 1022(a)(1)(A); Regulatory Notice 09-41 (July 2009); and
Securities Exchange Act Release No. 57073 (December 31, 2007), 73 FR
1382 (January 8, 2008) (Notice of Filing and Immediate Effectiveness
of File No. SR-FINRA-2007-028).
\10\ A person who is registered as a General Securities Sales
Supervisor (Series 9/10) and passes the General Securities Principal
Sales Supervisor Module (Series 23) examination is also qualified to
function as a General Securities Principal. In conjunction with the
proposed rule change, FINRA is filing revisions to the content
outline and selection specifications for the Series 23 examination
program. See SR-FINRA-2014-034 (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change to Revise the Series 23
Examination Program).
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In consultation with a committee of industry representatives, FINRA
recently undertook a review of the Series 24 examination program. As a
result of this review, FINRA is proposing to make revisions to the
content outline to reflect changes to the laws, rules and regulations
covered by the examination and to incorporate the functions and
associated tasks currently performed by a General Securities Principal.
FINRA also is proposing to make changes to the format of the content
outline.
Current Outline
The current content outline is divided into five sections. The
following are the five sections and the number of questions associated
with each of the sections, denoted Section 1 through Section 5:
1. Supervision of Investment Banking, Underwriting Activities and
Research, 33 questions;
2. Supervision of Trading and Market Making Activities, 31
questions;
3. Supervision of Brokerage Office Operations, 29 questions;
4. Sales Supervision and General Supervision of Employees, 43
questions; and
5. Compliance with Financial Responsibility Rules, 14 questions.
Each section also includes the applicable laws, rules and
regulations associated with that section. The current outline also
includes a preface (addressing, among other things, the purpose,
administration and scoring of the examination), sample questions and
reference materials.
Proposed Revisions
FINRA is proposing to divide the content outline into five major
job functions that are performed by a General Securities Principal. The
following are the five major job functions, denoted Function 1 through
Function 5, with the associated number of questions:
Function 1: Supervision of Registration of the Broker-Dealer and
Personnel Management Activities, 9 questions;
Function 2: Supervision of General Broker-Dealer Activities, 45
questions;
Function 3: Supervision of Retail and Institutional Customer-
Related Activities, 32 questions;
Function 4: Supervision of Trading and Market Making Activities, 32
questions; and
Function 5: Supervision of Investment Banking and Research, 32
questions.
FINRA is also proposing to adjust the number of questions assigned
to each major job function to ensure that the overall examination
better reflects the key tasks performed by a General Securities
Principal. The questions on the revised Series 24 examination will
place greater emphasis on key tasks such as supervision of registered
persons, sales practices and compliance.
Each function also includes specific tasks describing activities
associated with performing that function. There are two tasks (1.1-1.2)
associated with Function 1; seven tasks (2.1-2.7) associated with
Function 2; three tasks (3.1-3.3) associated with Function 3; three
tasks (4.1-4.3) associated with Function 4; and three tasks (5.1-5.3)
associated with Function 5.\11\ By way of example, one such task (Task
2.1) is to develop, implement and update firm's policies, written
supervisory procedures (WSP) and controls for applicable rules and
regulations; and implement appropriate monitoring and testing.\12\
Further, the outline lists the knowledge required to perform each
function and associated tasks (e.g., business and regulatory
requirements for firm's systems and technologies).\13\ In addition,
where applicable, the outline lists the laws, rules and regulations a
candidate is expected to know to perform each function and associated
tasks. These include the applicable FINRA Rules (e.g., FINRA Rule
2090), NASD Rules (e.g., NASD Rule 2510) and SEC rules (e.g., SEA Rule
15c1-7).\14\ FINRA conducted a job analysis study of General Securities
Principals, which included the use of a survey, in developing each
function and associated tasks and updating the required knowledge set
forth in the revised outline. The functions and associated tasks, which
appear in the revised outline for the first time, reflect the day-to-
day activities of a General Securities Principal.
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\11\ See Exhibit 3a, Outline Pages 6-29. The Commission notes
that Exhibit 3a is an exhibit to the filing, not to this Notice.
\12\ See Exhibit 3a, Outline Page 9.
\13\ See Exhibit 3a, Outline Page 9.
\14\ See Exhibit 3a, Outline Page 19.
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As noted above, FINRA also is proposing to revise the content
outline to reflect changes to the laws, rules and regulations covered
by the examination.
[[Page 46889]]
Among other revisions, FINRA is proposing to revise the content outline
to reflect the adoption of rules in the consolidated FINRA rulebook
(e.g., NASD Rule 2310 (Recommendations to Customers (Suitability), NASD
Rule 2212 (Telemarketing) and NASD Rule 3110 (Books and Records) were
adopted as FINRA Rule 2111 (Suitability), FINRA Rule 3230
(Telemarketing) and FINRA Rule 4510 Series (Books and Records
Requirements), respectively)).\15\
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\15\ See Rule Conversion Chart, available at http://www.finra.org/Industry/Regulation/FINRARules/p085560.
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FINRA is proposing similar changes to the Series 24 selection
specifications and question bank.
Finally, FINRA is proposing to make changes to the format of the
content outline, including the preface, sample questions and reference
materials. Among other changes, FINRA is proposing to: (1) Add a table
of contents; \16\ (2) provide more details regarding the purpose of the
examination; \17\ (3) provide more details on the application
procedures; \18\ (4) provide more details on the development and
maintenance of the content outline and examination; \19\ (5) explain
that the passing scores are established by FINRA staff, in consultation
with a committee of industry representatives, using a standard setting
procedure and that the scores are an absolute standard independent of
the performance of candidates taking the examination; \20\ and (6) note
that each candidate will receive a score report at the end of the test
session, which will indicate a pass or fail status and include a score
profile listing the candidate's performance on each major content area
covered on the examination.\21\
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\16\ See Exhibit 3a, Outline Page 2.
\17\ See Exhibit 3a, Outline Page 3.
\18\ See Exhibit 3a, Outline Page 3.
\19\ See Exhibit 3a, Outline Page 4.
\20\ See Exhibit 3a, Outline Page 5.
\21\ See Exhibit 3a, Outline Page 5.
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The number of questions on the Series 24 examination will remain at
150 multiple-choice questions,\22\ and candidates will continue to have
3 hours and 45 minutes to complete the examination. Currently, a score
of 70 percent is required to pass the examination. The passing score
will remain the same.
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\22\ Consistent with FINRA's practice of including ``pre-test''
questions on certain qualification examinations, which is designed
to ensure that new examination questions meet acceptable testing
standards prior to use for scoring purposes, the examination
includes 10 additional, unidentified pre-test questions that do not
contribute towards the candidate's score. Therefore, the examination
actually consists of 160 questions, 150 of which are scored. The 10
pre-test questions are randomly distributed throughout the
examination.
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Availability of Content Outlines
The current Series 24 content outline is available on FINRA's Web
site, at www.finra.org/brokerqualifications/exams. The revised Series
24 content outline will replace the current content outline on FINRA's
Web site.
FINRA is filing the proposed rule change for immediate
effectiveness. FINRA proposes to implement the revised Series 24
examination program on October 13, 2014. FINRA will announce the
proposed rule change and the implementation date in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed revisions to the Series 24
examination program are consistent with the provisions of Section
15A(b)(6) of the Act,\23\ which requires, among other things, that
FINRA rules must be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
and, in general, to protect investors and the public interest, and
Section 15A(g)(3) of the Act,\24\ which authorizes FINRA to prescribe
standards of training, experience, and competence for persons
associated with FINRA members. FINRA believes that the proposed
revisions will further these purposes by updating the examination
program to reflect changes to the laws, rules and regulations covered
by the examination and to incorporate the functions and associated
tasks currently performed by a General Securities Principal.
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\23\ 15 U.S.C. 78o-3(b)(6).
\24\ 15 U.S.C. 78o-3(g)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The updated examination aligns
with the functions and associated tasks currently performed by a
General Securities Principal and tests knowledge of the most current
laws, rules, regulations and skills relevant to those functions and
associated tasks. As such, the proposed revisions would make the
examination more efficient and effective.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \25\ and paragraph (f)(1) of Rule 19b-4
thereunder.\26\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(1).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2014-035 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2014-035. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the
[[Page 46890]]
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
such filing also will be available for inspection and copying at the
principal office of FINRA. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-FINRA-2014-035 and should be submitted on or before September 2,
2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18881 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P