[Federal Register Volume 83, Number 39 (Tuesday, February 27, 2018)]
[Notices]
[Pages 8529-8532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03887]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82748; File No. SR-FINRA-2018-009]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Revise the Direct Participation Programs
Representative (Series 22) Examination
February 21, 2018.
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 February 12, 2018, 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 proposing revisions to the content outline and selection
specifications for the Direct Participation Programs Representative
(Series 22) examination as part of the restructuring of the
representative-level examination program.\5\ The proposed revisions
also 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 Direct Participation
Programs
[[Page 8530]]
Representative. 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 22 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. 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 Series 22 content outline is attached.\6\ The revised
Series 22 selection specifications have been submitted to the
Commission under separate cover with a request for confidential
treatment pursuant to SEA Rule 24b-2.\7\
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\6\ The Commission notes that the content outline is attached to
the filing, not to this Notice.
\7\ 17 CFR 240.24b-2.
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The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room. [sic]
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Section 15A(g)(3) of the Act \8\ 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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\8\ 15 U.S.C. 78o-3(g)(3).
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The SEC recently approved a proposed rule change to restructure the
FINRA representative-level qualification examination program.\9\ The
rule change, which will become effective on October 1, 2018,\10\
restructures the examination program into a new format whereby all new
representative-level applicants will be required to take a general
knowledge examination (the Securities Industry Essentials or SIE
TM) and a tailored, specialized knowledge examination (a
revised representative-level qualification examination) for their
particular registered role.
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\9\ See Securities Exchange Act Release No. 81098 (July 7,
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
\10\ See Regulatory Notice 17-30 (SEC Approves Consolidated
FINRA Registration Rules, Restructured Representative-Level
Qualification Examinations and Changes to Continuing Education
Requirements) (October 2017).
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The restructured program eliminates duplicative testing of general
securities knowledge on the current representative-level qualification
examinations by moving such content into the SIE examination.\11\ The
SIE examination will test fundamental securities-related knowledge,
including knowledge of basic products, the structure and function of
the securities industry, the regulatory agencies and their functions
and regulated and prohibited practices, whereas the revised
representative-level qualification examinations will test knowledge
relevant to day-to-day activities, responsibilities and job functions
of representatives.\12\
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\11\ Each of the current representative-level examinations
covers general securities knowledge, with the exception of the
Research Analyst (Series 86 and 87) examinations.
\12\ FINRA filed the SIE content outline with the SEC for
immediate effectiveness. See Securities Exchange Act Release No.
82578 (January 24, 2018), 83 FR 4375 (January 30, 2018) (Notice of
Filing and Immediate Effectiveness of File No. SR-FINRA-2018-002).
In addition to the proposed rule change relating to the revised
Series 22 examination, FINRA is filing with the Commission for
immediate effectiveness the content outlines for the other revised
representative-level qualification examinations.
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As part of the restructuring process and in consultation with a
committee of industry representatives, FINRA undertook a review of the
Direct Participation Programs Representative (Series 22) examination to
remove the general securities knowledge currently covered on the
examination and to create a tailored examination to test knowledge
relevant to the day-to-day activities, responsibilities and job
functions of a Direct Participation Programs Representative. As a
result of this review, FINRA also is proposing to revise the Series 22
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 Direct Participation Programs
Representative. The proposed change will align the organization of the
Series 22 content outline with the organization of the content outlines
of the other revised representative-level examinations.\13\ In
addition, FINRA is proposing to make other changes to the format of the
Series 22 content outline.
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\13\ FINRA currently has organized several FINRA qualification
examinations, such as the Securities Trader (Series 57) examination,
based on the functions that are performed by the respective
registered persons and the associated tasks. FINRA is proposing
similar layouts for all of the representative-level examinations,
including the Series 22 examination.
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Beginning on October 1, 2018, new applicants seeking to register as
Direct Participation Programs Representatives must pass the SIE
examination and the revised Direct Participation Programs
Representative (Series 22) examination.
Current Content Outline
The current Series 22 content outline is divided into six sections.
The following are the six sections, denoted Section 1 through Section
6, with the associated number of questions:
1. Investment Entities for Direct Participation Programs, 12
questions;
2. Types of Direct Participation Programs, 11 questions;
3. Offering Practices Applicable to Direct Participation Programs,
14 questions;
4. Tax Issues Applicable to Direct Participation Programs, 20
questions;
5. Regulation of Direct Participation Programs, 32 questions; and
6. Factors to Consider in Evaluating Direct Participation Programs,
11 questions.
In addition, each section includes references to the applicable
laws, rules and regulations associated with that section. The current
content outline also includes a preface (addressing, among other
things, the purpose, administration and scoring of the examination),
sample questions and reference materials.
Revised Content Outline
As noted above, FINRA is proposing to move the general securities
knowledge currently covered on the Series 22 examination to the SIE
examination. For example, FINRA Rule 3220 (Influencing or Rewarding
Employees of Others) (the Gifts Rule) will now be tested on the SIE
examination, rather than on the Series 22 examination. As a result, the
revised Series 22 examination will test knowledge specific to the day-
to-day activities, responsibilities and job functions of a Direct
Participation Programs Representative.
[[Page 8531]]
Further, FINRA is proposing to reorganize the content outline by
dividing it into four major job functions that are performed by a
Direct Participation Programs Representative. The proposed change
aligns the major job functions performed by a Direct Participation
Programs Representative with the major job functions performed by other
sales representatives, including Investment Company and Variable
Contracts Products Representatives, General Securities Representatives
and Private Securities Offerings Representatives. The following are the
four major job functions, denoted Function 1 through Function 4, with
the associated number of questions:
Function 1: Seeks Business for the Broker-Dealer from Customers and
Potential Customers, 17 questions;
Function 2: Opens Accounts After Obtaining and Evaluating
Customers' Financial Profile and Investment Objectives, 4 questions;
Function 3: Provides Customers with Information About Investments,
Makes Suitable Recommendations, Transfers Assets and Maintains
Appropriate Records, 27 questions; and
Function 4: Obtains and Verifies Customers' Purchase Instructions
and Agreements; Processes, Completes and Confirms Transactions, 2
questions.
FINRA also is 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 Direct Participation
Programs Representative. The questions on the revised Series 22
examination will place emphasis on tasks such as seeking business for
the broker-dealer from customers and potential customers, opening
customer accounts, providing customers with suitable recommendations
and verifying customer agreements and transactions.
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;\14\ four tasks (2.1--2.4) associated
with Function 2; \15\ four tasks (3.1--3.4) associated with Function 3;
\16\ and three tasks (4.1--4.3) associated with Function 4.\17\ For
example, one such task (Task 1.1) is contacting current and potential
customers in person and by telephone, mail and electronic means,
developing promotional and advertising materials and seeking
appropriate approvals to distribute marketing materials.\18\ The
content outline also lists the knowledge required to perform each
function and associated tasks (e.g., standards and required approvals
of communications). In addition, where applicable, the content outline
lists the laws, rules and regulations a candidate is expected to know
to perform each function and associated tasks (e.g., FINRA Rule 2111
(Suitability)).
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\14\ See Exhibit 3a, Outline Pages 3-4. The outline is attached
as Exhibit 3a to the 19b-4 form.
\15\ See Exhibit 3a, Outline Pages 5-6.
\16\ See Exhibit 3a, Outline Pages 7-10.
\17\ See Exhibit 3a, Outline Pages 11-12.
\18\ See Exhibit 3a, Outline Page 3.
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FINRA also is proposing to revise the content outline to reflect
changes to the laws, rules and regulations covered by the examination.
Among other revisions, FINRA is proposing to revise the content outline
to reflect the adoption of new FINRA rules (e.g., FINRA Rule 2273
(Educational Communication Related to Recruitment Practices and Account
Transfers)).
FINRA is proposing similar changes to the Series 22 selection
specifications and question bank.
Finally, FINRA is proposing to make other changes to the format of
the content outline, including to the preface, sample questions and
reference materials.\19\ Among other changes, FINRA is proposing to:
(1) Reduce the preface to one page of introductory information; (2)
streamline details regarding the purpose of the examination; (3) move
the application procedures to FINRA's website; and (4) explain that the
passing score is established using a standard setting procedure, and
that a statistical adjustment process known as equating is used in
scoring the examination.\20\
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\19\ FINRA is proposing similar changes to the content outlines
for other representative-level examinations.
\20\ See Exhibit 3a, Outline Page 2.
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As a result of the proposed changes, the number of scored questions
on the Series 22 examination will be reduced from 100 questions to 50
questions.\21\ Further, the test time, which is the amount of time
candidates will have to complete the examination, will be reduced from
two hours and 30 minutes to one hour and 30 minutes. Currently, a score
of 70 percent is required to pass the examination. FINRA will publish
the passing score of the revised Series 22 examination on its website,
at www.finra.org, prior to its first administration.
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\21\ Consistent with FINRA's practice of including ``pretest''
questions on examinations, the Series 22 examination includes five
additional, unidentified pretest questions that do not contribute
towards the candidate's score. The pretest questions are designed to
ensure that new examination questions meet acceptable testing
standards prior to use for scoring purposes. Therefore, the Series
22 examination actually consists of 55 questions, 50 of which are
scored. The five pretest questions are randomly distributed
throughout the examination.
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Availability of Content Outline
The current Series 22 content outline is available on FINRA's
website. The revised Series 22 content outline will replace the current
content outline on FINRA's website, and it will be made available on
the website on the date of this filing.
FINRA is filing the proposed rule change for immediate
effectiveness. The implementation date will be October 1, 2018, to
coincide with the implementation of the restructured representative-
level examination program. FINRA will also announce the implementation
date of the proposed rule change in a Regulatory Notice.
2. Statutory Basis
FINRA believes that the proposed revisions to the Series 22
examination program are consistent with the provisions of Section
15A(b)(6) of the Act,\22\ 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,\23\ which authorizes FINRA to prescribe
standards of training, experience, and competence for persons
associated with FINRA members. The proposed rule change will improve
the examination program, without compromising the qualification
standards, by removing the general knowledge content currently covered
on the Series 22 examination, since that content will be covered in the
co-requisite SIE examination. In addition, the proposed revisions will
further the purposes of the Act 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 Direct Participation Programs Representative.
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\22\ 15 U.S.C. 78o-3(b)(6).
\23\ 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 Direct
Participation Programs Representative and tests knowledge of the most
current laws,
[[Page 8532]]
rules, regulations and skills relevant to those functions and
associated tasks. As such, the proposed revisions would make the
examination more effective. FINRA also provided a detailed economic
impact assessment regarding the introduction of the SIE examination and
the restructuring of the representative-level examinations as part of
the proposed rule change to restructure the FINRA representative-level
qualification examination program.\24\
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\24\ See Securities Exchange Act Release No. 80371 (April 4,
2017), 82 FR 17336 (April 10, 2017) (Notice of Filing of File No.
SR-FINRA-2017-007).
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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-2018-009 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-2018-009. 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 website (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 public in accordance with the provisions
of 5 U.S.C. 552, will be available for website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2018-009, and should be submitted
on or before March 20, 2018.
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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03887 Filed 2-26-18; 8:45 am]
BILLING CODE 8011-01-P