Document ID: SEC-2015-1719-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-10-23T04:00Z

[Federal Register Volume 80, Number 205 (Friday, October 23, 2015)]
[Notices]
[Pages 64458-64461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26914]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76190; File No. SR-FINRA-2015-039]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Series 28 Examination Program

October 19, 2015.
    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

[[Page 64459]]

on October 13, 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, 
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 Introducing Broker-Dealer Financial and 
Operations Principal (Series 28) 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 an Introducing Broker-
Dealer Financial and Operations 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 28 question bank. 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 content outline is attached.\6\ The Series 28 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 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 \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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    NASD Rule 1022(c)(1) requires that every member that is subject to 
the requirements of SEA Rule 15c3-1,\9\ other than a member operating 
pursuant to SEA Rule 15c3-1(a)(1)(ii),\10\ SEA Rule 15c3-1(a)(2)(i) 
\11\ or SEA Rule 15c3-1(a)(8),\12\ shall designate as Introducing 
Broker-Dealer Financial and Operations Principal \13\ those persons 
associated with it, at least one of whom shall be its chief financial 
officer, who perform the duties described in paragraph (c)(2) of the 
rule. The rule provides that each person associated with a member who 
performs such duties shall be required to register as an Introducing 
Broker-Dealer Financial and Operations Principal with FINRA and shall 
pass an appropriate qualification examination before such registration 
may become effective. Paragraph (b)(2) of the rule provides that the 
term Introducing Broker-Dealer Financial and Operations Principal shall 
mean a person associated with a member whose duties include:
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    \9\ 17 CFR 240.15c3-1. SEA Rule 15c3-1 is the SEC's net capital 
rule for brokers and dealers.
    \10\ 17 CFR 240.15c3-1(a)(1)(ii). SEA Rule 15c3-1(a)(1)(ii) 
addresses net capital requirements for brokers or dealers that elect 
not to be subject to the Aggregate Indebtedness Standard of 
paragraph (a)(1)(i) under Rule 15c3-1.
    \11\ 17 CFR 240.15c3-1(a)(2)(i). SEA Rule 15c3-1(a)(2)(i) 
addresses net capital requirements for brokers or dealers that carry 
customer accounts.
    \12\ 17 CFR 240.15c3-1(a)(8). SEA Rule 15c3-1(a)(8) addresses 
net capital requirements for municipal securities brokers' brokers, 
as defined under the rule.
    \13\ The term ``Limited Principal--Introducing Broker/Dealer 
Financial and Operations'' as set forth in NASD Rule 1022(c) is 
referred to as ``Introducing Broker-Dealer Financial and Operations 
Principal'' for purposes of this filing. The term ``principal'' is 
defined in NASD Rule 1021(b) (Definition of Principal).
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     Final approval and responsibilities for the accuracy of 
financial reports submitted to any duly established securities industry 
regulatory body;
     final preparation of such reports;
     supervision of individuals who assist in the preparation 
of such reports;
     supervision of and responsibility for individuals who are 
involved in the actual maintenance of the member's books and records 
from which such reports are derived;
     supervision and/or performance of the member's 
responsibilities under all financial responsibility rules promulgated 
pursuant to the provisions of the Act;
     overall supervision of and responsibility for the 
individuals who are involved in the administration and maintenance of 
the member's back office operations; or
     any other matter involving the financial and operational 
management of the member.
    NASD Rule 1022(c)(3) provides that, except as set forth in NASD 
Rule 1021(c),\14\ a person designated pursuant to the provisions of 
NASD Rule 1022(c)(1) shall not be required to take the Introducing 
Broker-Dealer Financial and Operations Principal examination and shall 
be qualified for registration as such if the person is qualified to be 
registered or is registered as a Financial and Operations Principal as 
defined in NASD Rule 1022(b)(2).\15\
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    \14\ NASD Rule 1021(c) addresses requirements for examination on 
lapse of registration.
    \15\ For purposes of this filing, the term ``Financial and 
Operations Principal'' is used interchangeably with the term 
``Limited Principal--Financial and Operations'' as set forth in NASD 
Rule 1022(b). Rule 1022(b)(2) sets forth the duties of a Financial 
and Operations Principal. See SR-FINRA-2015-038 (establishing 
revisions to the content outline and selection specifications for 
the Financial and Operations Principal (Series 27) examination 
program).
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    NASD Rule 1022(c)(4) provides that a person registered solely as an 
Introducing Broker-Dealer Financial and Operations Principal shall not 
be qualified to function in a principal capacity with responsibility 
over any

[[Page 64460]]

area of business activity not described in paragraph (c)(2) of the 
rule. The rule provides that such person shall not be qualified to 
function in a principal capacity at a member unless the member operates 
under paragraph (c)(1) of the rule.
    In consultation with a committee of industry representatives, FINRA 
recently undertook a review of the Series 28 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 an Introducing Broker-Dealer 
Financial and Operations 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. Keeping And Preservation of Records and Broker-Dealer Financial 
Reporting Requirements, 16 questions;
    2. Net Capital Requirements, 36 questions;
    3. Customer Protection, 10 questions;
    4. Uniform Practice Rules, 5 questions; and
    5. Other Relevant Regulations and Interpretations, 28 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
    To develop the revised outline, FINRA conducted a job analysis 
study of Introducing Broker-Dealer Financial and Operations Principals, 
which included the use of a survey. The study provided detailed 
information regarding the day-to-day roles, responsibilities and job 
functions of Introducing Broker-Dealer Financial and Operations 
Principals. As a result, FINRA is proposing to revise the structure of 
the outline as described below to include functions and associated 
tasks that reflect the day-to-day activities of an Introducing Broker-
Dealer Financial and Operations Principal.
    Specifically, FINRA is proposing to divide the content outline into 
four major job functions that are performed by an Introducing Broker-
Dealer Financial and Operations Principal. The following are the four 
major job functions, denoted Function 1 through Function 4, with the 
associated number of questions:
    Function 1: Financial Reporting, 16 questions;
    Function 2: Operations, General Securities Industry Regulations, 
and Preservation of Books and Records, 30 questions;
    Function 3: Net Capital, 31 questions; and
    Function 4: Customer Protection, Funding and Cash Management, 18 
questions.
    As noted above, each major job function includes an assigned number 
of questions. FINRA determined the number of questions for each 
function based on the results of the job analysis study. Thus, compared 
to the existing outline, the allocation of questions in the revised 
outline more closely reflects the current day-to-day activities of an 
Introducing Broker-Dealer Financial and Operations Principal.
    Each function also includes specific tasks describing activities 
associated with performing that function. There are five tasks (1.1-
1.5) associated with Function 1; three tasks (2.1-2.3) associated with 
Function 2; seven tasks (3.1-3.7) associated with Function 3; and three 
tasks (4.1-4.3) associated with Function 4.\16\ By way of example, one 
such task (Task 2.2) is prepare and preserve financial records to 
ensure accuracy and completeness of internal financial documents.\17\ 
Further, the outline lists the knowledge required to perform each 
function and associated tasks (e.g., general ledger and sub-
ledgers).\18\ 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 4160), NASD Rules (e.g., NASD Rule 2340) and 
SEC rules (e.g., SEA Rule 17a-4).\19\
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    \16\ See Exhibit 3a, Outline Pages 6-17. The Commission notes 
that all references to Exhibit 3a refer to Exhibit 3a to the 
proposed rule change.
    \17\ See Exhibit 3a, Outline Page 10.
    \18\ See Exhibit 3a, Outline Page 10.
    \19\ See Exhibit 3a, Outline Page 10.
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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. 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 2430 (Charges for Services 
Performed) and NASD Rule 3110 (Books and Records) were adopted as FINRA 
Rule 2122 (Charges for Services Performed) and FINRA Rule 4510 Series 
(Books and Records Requirements), respectively).\20\
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    \20\ 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 28 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; \21\ (2) provide more details regarding the purpose of the 
examination; \22\ (3) provide more details on the application 
procedures; \23\ (4) provide more details on the development and 
maintenance of the content outline and examination; \24\ (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; \25\ 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.\26\
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    \21\ See Exhibit 3a, Outline Page 2.
    \22\ See Exhibit 3a, Outline Page 3.
    \23\ See Exhibit 3a, Outline Page 3.
    \24\ See Exhibit 3a, Outline Page 4.
    \25\ See Exhibit 3a, Outline Page 5.
    \26\ See Exhibit 3a, Outline Page 5.
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    The number of questions on the Series 28 examination will remain at 
95 multiple-choice questions, and candidates will continue to have 120 
minutes to complete the examination. Currently, a score of 70 percent 
is required to pass the examination. The passing score for the revised 
Series 28 examination will be 69 percent.
Availability of Content Outlines
    The current Series 28 content outline is available on FINRA's Web 
site, at http://www.finra.org/industry/qualification-exams. The revised 
Series 28 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 28 
examination program on December 14, 2015. FINRA will

[[Page 64461]]

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 28 
examination program are consistent with the provisions of Section 
15A(b)(6) of the Act,\27\ 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,\28\ 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 an Introducing Broker-Dealer Financial and 
Operations Principal.
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    \27\ 15 U.S.C. 78o-3(b)(6).
    \28\ 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 an 
Introducing Broker-Dealer Financial and Operations 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 \29\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\30\ 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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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-039 on the subject line.

Paper Comments

     Send paper comments in triplicate to Robert W. Errett, 
Deputy Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2015-039. 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 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 
a.m. and 3 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-2015-039 and should be 
submitted on or before November 13, 2015.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26914 Filed 10-22-15; 8:45 am]
BILLING CODE 8011-01-P