[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41119-41123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17172]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75394; File No. SR-FINRA-2015-017]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To
Establish the Securities Trader and Securities Trader Principal
Registration Categories
July 8, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 29, 2015, 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 and
II below, which Items have been prepared by FINRA. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend NASD Rule 1032(f) (Limited
Representative--Equity Trader) to replace the Equity Trader
registration category and qualification examination (Series 55) with a
Securities Trader registration category and qualification examination
(Series 57). In addition, the proposed rule change amends NASD Rule
1022(a) (General Securities Principal) to establish a Securities Trader
Principal registration category. The proposed rule change also makes
technical conforming changes to the Form U4 (Uniform Application for
Securities Industry Registration or Transfer).
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
[[Page 41120]]
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
FINRA is proposing to replace the current Equity Trader
registration category and qualification examination (Series 55) with a
Securities Trader registration category and qualification examination
(Series 57). FINRA also is proposing to establish a Securities Trader
Principal registration category for a principal with supervisory
responsibility over securities trading activities.\3\ FINRA is
expecting the national securities exchanges to file similar proposed
rule changes to replace the Proprietary Trader qualification
examination (Series 56) with the Securities Trader qualification
examination (Series 57) in their respective registration rules relating
to securities trading activities. In addition, FINRA is proposing
technical conforming changes to the Form U4.
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\3\ The Commission notes that the term ``securities trading
activities'' or ``trading activities,'' as used in this filing to
describe FINRA's Equity Traders, proposed Securities Traders, and
proposed Securities Trader Principals, refers to the securities
trading activities described in NASD Rule 1032(f)(1).
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I. Securities Trader Registration Category
As described in greater detail below, FINRA and the national
securities exchanges have different qualification standards for
individuals engaged in securities trading activities.
Pursuant to NASD Rule 1032(f), each associated person of a member
who is included within the definition of ``representative'' in NASD
Rule 1031 (Registration Requirements) is required to register with
FINRA as an Equity Trader if, with respect to transactions in equity
(including equity options), preferred or convertible debt securities
effected otherwise than on a securities exchange, such person is
engaged in proprietary trading, the execution of transactions on an
agency basis or the direct supervision of such activities. There is an
exception from the Equity Trader requirement for any associated person
of a member whose trading activities are conducted principally on
behalf of an investment company that is registered with the SEC
pursuant to the Investment Company Act of 1940 and that controls, is
controlled by, or is under common control with the member. The Series
55 examination currently qualifies an associated person to function as
an Equity Trader. Before registration as an Equity Trader may become
effective, the associated person must be registered as either a General
Securities Representative (Series 7) or Corporate Securities
Representative (Series 62). FINRA does not recognize the Series 56
examination as an acceptable qualification standard for associated
persons engaged in securities trading.
In contrast, the exchanges currently use the Series 56 examination
as a qualification standard for several registration categories
relating to securities trading, including the Proprietary Trader
registration category,\4\ and most do not recognize the Series 55
examination as an acceptable qualification standard under their
respective registration rules.\5\ Unlike the Series 55 examination,
there is no prerequisite registration requirement for individuals
taking the Series 56 examination. The Series 56 examination is
administered by FINRA, but, as noted above, it is not recognized by
FINRA as an acceptable qualification examination for associated persons
engaged in securities trading. Associated persons of FINRA members are
required to pass the Series 55 examination to engage in over-the-
counter securities trading. Consequently, individuals engaged in
trading activities at broker-dealers are subject to varying
qualification requirements depending on whether their activities take
place on a securities exchange or over-the-counter. Yet, there is
significant overlap in the content of the Series 55 and 56 examinations
because the examinations test the core knowledge required of
individuals engaged in trading activities as well as the self-
regulatory organization (SRO) rules, including trading rules, that are
common across SROs.
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\4\ For instance, under the rules of the Chicago Board Options
Exchange (CBOE), an individual trading permit holder or individual
associated person who is engaged in proprietary trading, market-
making or effecting transactions on behalf of a broker-dealer is
required to register and qualify as a Proprietary Trader. See
Interpretation and Policy .08(a)(1) to CBOE Rule 3.6A (Qualification
and Registration of Trading Permit Holders and Associated Persons).
To qualify as a Proprietary Trader under the CBOE rules, an
individual must pass the Series 56 examination or be registered as a
General Securities Representative. See Interpretation and Policy
.08(b) to CBOE Rule 3.6A.
\5\ NASDAQ recognizes the Series 55 examination. Specifically,
NASDAQ members that are FINRA members are also subject to the Equity
Trader registration requirement with respect to transactions on
NASDAQ, and thus must pass the Series 55 qualification examination
to engage in such activities. See NASDAQ Rule 1032(f) (Limited
Representative--Equity Trader).
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To eliminate duplication and a fragmented qualification standard
for individuals engaged in trading activities, FINRA, in consultation
with the national securities exchanges, is proposing to amend NASD Rule
1032(f) to replace the Equity Trader registration category and
qualification examination with a Securities Trader registration
category and qualification examination. As part of the proposed rule
change, FINRA is proposing to develop the Securities Trader
qualification examination (Series 57), which will be based on the
current job functions of securities traders, including elements of the
Series 55 and 56 examination programs,\6\ and require associated
persons to pass the Series 57 examination to register as Securities
Traders. FINRA understands that the exchanges also plan to replace the
Series 56 examination with the Series 57 examination for those
registration categories, such as the Proprietary Trader registration
category, where the Series 56 is currently an acceptable qualification
standard. To provide consistency with the rules of the national
securities exchanges and to develop a more tailored examination, FINRA
is proposing to eliminate the current prerequisite registration
requirement in NASD Rule 1032(f) (General Securities Representative or
Corporate Securities Representative prerequisite registration) and,
instead, to include in the Series 57 examination the core knowledge
portion of the General Securities Representative examination (Series
7).
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\6\ The Series 55 examination consists of 100 scored multiple-
choice questions and the testing time is 3 hours. The Series 56
examination consists of 100 scored multiple-choice questions and the
testing time is 2 hours and 30 minutes. FINRA will develop the
Series 57 examination, including the appropriate topics, depth of
knowledge, number of questions, time allotted and passing score, and
will file the examination with the SEC as part of a separate
proposed rule change.
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Further, FINRA is proposing to amend NASD Rule 1032(f) to provide
that an associated person registered as a Securities Trader will not be
qualified to function in any other registered capacity, unless he or
she is qualified and registered in that other registration category.
For instance, a person registered as a Securities Trader will not be
able to engage in any retail or institutional sales activities, unless
he or she is qualified and registered in the appropriate registration
category, such as a General Securities Representative.
A person registered as an Equity Trader in the Central Registration
Depository (CRD[supreg]) system on the effective date of the proposed
rule change will be grandfathered as a Securities Trader without having
to take any additional examinations and
[[Page 41121]]
without having to take any other actions. In addition, individuals who
were registered as Equity Traders in the CRD system prior to the
effective date of the proposed rule change will be eligible to register
as Securities Traders without having to take any additional
examinations, provided that no more than two years has passed between
the date they were last registered as a representative and the date
they register as a Securities Trader.\7\
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\7\ See NASD Rule 1031(c) (Requirements for Examination on Lapse
of Registration).
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II. Securities Trader Principal Registration Category
FINRA and the national securities exchanges also have different
qualification standards for individuals responsible for the supervision
of securities trading activities.
Currently, under FINRA rules, an associated person with direct
supervisory responsibility over the securities trading activities set
forth in NASD Rule 1032(f) is required to qualify and register as an
Equity Trader.\8\ However, FINRA rules do not expressly require such
persons to register in a specific principal registration category.\9\
Conversely, most national securities exchanges expressly require that
an individual associated with an exchange member with supervisory
responsibility over proprietary trading activities qualify and register
as a Proprietary Trader Principal.\10\
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\8\ See NASD Rule 1032(f) and FINRA Rule 3110(a) (Supervisory
System).
\9\ In general, a General Securities Principal with supervisory
responsibility over securities trading activities is currently
required to qualify and register as an Equity Trader.
\10\ For instance, under CBOE rules, an individual trading
permit holder or individual associated person who (1) supervises or
monitors proprietary trading, market-making or brokerage activities
for broker-dealers; (2) supervises or trains those engaged in
proprietary trading, market-making or effecting transactions on
behalf of a broker-dealer, with respect to those activities; or (3)
is an officer, partner or director of a trading permit holder or
organization is required to register and qualify as a Proprietary
Trader Principal. See Interpretation and Policy .08(a)(2) to CBOE
Rule 3.6A. To qualify for registration as a Proprietary Trader
Principal under the CBOE rules, an individual must be registered as
a Proprietary Trader and pass the General Securities Principal
qualification examination (Series 24) (passing the General
Securities Principal Sales Supervisor Module examination (Series
23), in combination with qualification and registration as a General
Securities Sales Supervisor (Series 9/10), is an acceptable
qualification alternative to the Series 24 examination). See
Interpretation and Policy .08(b) to CBOE Rule 3.6A.
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To harmonize FINRA rules with the rules of the exchanges regarding
the registration and qualification of individuals responsible for
supervising securities trading activities, FINRA is proposing to amend
NASD Rule 1022(a) to establish a Securities Trader Principal
registration category and require each associated person of a member
who is included within the definition of ``principal'' in NASD Rule
1021 (Registration Requirements) with supervisory responsibility over
the securities trading activities described in NASD Rule 1032(f) to
qualify and register as a Securities Trader Principal. The proposed
rule change will also allow FINRA to more easily track principals with
supervisory responsibility over securities trading activities. To
qualify for registration as a Securities Trader Principal, an
individual must be registered as a Securities Trader and pass the
General Securities Principal qualification examination. As stated
above, FINRA understands that the exchanges plan to replace the Series
56 examination with the Series 57 examination under their respective
registration rules. Therefore, the Series 57 examination will also
replace the Series 56 examination for those registration categories,
such as the Proprietary Trader Principal registration category, where
the Series 56 examination is currently an acceptable prerequisite.
A person registering as a Securities Trader Principal will be
required to pass the General Securities Principal examination, but will
not be eligible to register as a General Securities Principal unless
the person passes the appropriate prerequisite examination for General
Securities Principal registration, such as the Series 7 examination.
Therefore, FINRA is proposing to amend NASD Rule 1022(a) to clarify
that a person qualified and registered as a Securities Trader Principal
may only have supervisory responsibility over the activities specified
in NASD Rule 1032(f), unless such person is separately qualified and
registered in another appropriate principal registration category, such
as the General Securities Principal registration category. Conversely,
the proposed rule change clarifies that a person registered as a
General Securities Principal will not be qualified to supervise the
trading activities described in NASD Rule 1032(f), unless he or she
qualifies and registers as a Securities Trader (by passing the Series
57 examination) and affirmatively registers as a Securities Trader
Principal.
A person registered as a General Securities Principal and an Equity
Trader in the CRD system on the effective date of the proposed rule
change will be eligible to register as a Securities Trader Principal
without having to take any additional examinations. An individual who
was registered as a General Securities Principal and an Equity Trader
in the CRD system prior to the effective date of the proposed rule
change will also be eligible to register as a Securities Trader
Principal without having to take any additional examinations, provided
that no more than two years has passed between the date they were last
registered as a principal and the date they register as a Securities
Trader Principal.\11\ Members, however, will be required to
affirmatively register persons transitioning to the proposed
registration category as Securities Trader Principals on or after the
effective date of the proposed rule change.
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\11\ See NASD Rule 1021(c) (Requirements for Examination on
Lapse of Registration).
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III. Technical Conforming Changes to the Form U4
As part of the proposed rule change, and in anticipation of the
national securities exchanges filing similar proposed rule changes to
replace the Series 56 examination with the Series 57 examination in
their respective registration rules, FINRA is proposing to amend the
Form U4 to replace: (1) The Equity Trader registration category with
the Securities Trader registration category as well as references to
the Series 55 examination with the Series 57 examination; (2)
references to the Series 56 examination with the Series 57 examination;
and (3) the Proprietary Trader Principal registration category with the
Securities Trader Principal registration category.\12\
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\12\ FINRA will file a separate proposed rule change to amend
Section 4(c) of Schedule A to the FINRA By-Laws to establish the fee
for the proposed Securities Trader qualification examination.
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If the Commission approves the filing, FINRA will announce the
effective date of the proposed rule change in a Regulatory Notice to be
published no later than 90 days following Commission approval. The
effective date will be no later than 270 days following publication of
the Regulatory Notice announcing Commission approval, but FINRA intends
for the effective date to be January 4, 2016.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\13\ 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
[[Page 41122]]
public interest, and Section 15A(g)(3) of the Act,\14\ which authorizes
FINRA to prescribe standards of training, experience, and competence
for persons associated with FINRA members.
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\13\ 15 U.S.C. 78o-3(b)(6).
\14\ 15 U.S.C. 78o-3(g)(3).
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FINRA believes that the proposed rule change will streamline, and
bring consistency and uniformity to, the qualification and registration
requirements for individuals engaged in securities trading activities
across different markets and for principals responsible for supervising
such activities, which will, in turn, improve members' registration and
compliance efforts. Further, the proposed rule change's requirement to
affirmatively register principals who have supervisory responsibility
over trading activities as Securities Trader Principals will enhance
FINRA's ability to more easily identify and, if necessary, contact
those principals with supervisory responsibilities over trading
activities.
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.
FINRA believes that the proposed rule change relating to Securities
Traders, which FINRA is filing in anticipation of the exchanges filing
similar proposed rule changes to replace the Series 56 examination with
the Series 57 examination under their respective registration rules,
will reduce the burden on associated persons currently required to be
registered as traders by harmonizing the registration requirements for
representatives engaged in securities trading activities across
different markets. The proposed rule change would further reduce the
burden on associated persons in terms of the number of qualification
examinations that they would be required to take under FINRA rules to
be eligible to engage in securities trading activities in the future.
Under FINRA rules, an associated person engaged in securities trading
activities is currently required to qualify and register as a General
Securities Representative (or Corporate Securities Representative) and
an Equity Trader. Under the proposed rule change, associated persons
would be eligible to engage in securities trading activities by
registering as Securities Traders and passing a single comprehensive
qualification examination, the Series 57 examination, rather than
having to register in multiple categories and pass multiple
qualification examinations as currently required under FINRA rules.
This will benefit, on an annual basis, the approximately 1,000
associated persons who currently take the Series 55 examination.
Similar to the proposed rule change relating to Securities Traders,
FINRA believes that the proposed rule change relating to Securities
Trader Principals will reduce the burden on associated persons by
harmonizing the registration requirements for principals engaged in
securities trading activities across different markets. Further, the
proposed rule change will reduce the burden on such principals in terms
of the number of qualification examinations that they would be required
to take under FINRA rules to be eligible to supervise securities
trading activities in the future. Under FINRA rules, a General
Securities Principal with supervisory responsibility over securities
trading activities is currently required to qualify and register as a
General Securities Representative (or Corporate Securities
Representative) and an Equity Trader, in addition to qualifying and
registering as a General Securities Principal. The proposed rule change
would reduce the number of qualification examinations that would be
required of a principal to be eligible to supervise securities trading
activities under FINRA rules, by requiring such principal to register
as a Securities Trader and pass the General Securities Principal
qualification examination. The individuals that would benefit from the
proposed rule change relating to Securities Trader Principals are a
subset of the individuals that would benefit from the proposed rule
change relating to Securities Traders.
Further, the proposed rule change does not impose any additional
examination burdens on persons who are already registered. There is no
obligation to take the proposed Series 57 examination in order to
continue in their present duties, so the proposed rule change is not
expected to disadvantage current registered persons relative to new
entrants in this regard.
Moreover, FINRA does not believe that the proposed requirement to
affirmatively register current and new principals who have supervisory
responsibility over trading activities as Securities Trader Principals
would be unduly burdensome for members, and it believes that the
benefits of the proposed requirement, including the enhancement of
FINRA's ability to promptly identify and, if necessary, contact those
principals with supervisory responsibilities over trading activities,
outweigh any additional burden on firms.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2015-017 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-2015-017. 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 Commission and any person, other
than those that may be withheld from the
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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
the 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-2015-017 and should be submitted on or before August 4, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17172 Filed 7-13-15; 8:45 am]
BILLING CODE 8011-01-P