Document ID: SEC-2015-1050-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry RegulatoryAuthority, Inc.
Posted Date: 2015-06-24T04:00Z

[Federal Register Volume 80, Number 121 (Wednesday, June 24, 2015)]
[Notices]
[Pages 36388-36391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15454]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75246; File No. SR-FINRA-2015-018]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Series 4 Examination Program

June 18, 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 on June 12, 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 the 
Substance of the Proposed Rule Change

    FINRA is filing revisions to the content outline and selection 
specifications for the Registered Options Principal (Series 4) 
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 Registered Options 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 4 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.\6\ The Series 4 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 revised content outline is 
attached to the filing, not to this Notice. The content outline is 
available as part of the filing on FINRA's Web site.
    \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

[[Page 36389]]

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(f) requires members that engage in, or that intend 
to engage in transactions in options with the public to have at least 
one Registered Options Principal. Further, every person engaged in the 
supervision of options sales practices with the public, including a 
person designated pursuant to FINRA Rule 3110(a)(2) must be registered 
as a Registered Options Principal.\9\ A person registered solely as a 
Registered Options Principal is not qualified to function in a 
principal \10\ capacity with responsibility over any area of business 
activity that is not stated above.
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    \9\ NASD Rule 1022(f) also includes additional requirements 
applicable to Registered Options Principals engaged in securities 
futures activities. The rule generally provides that prior to the 
introduction of an appropriate qualification examination that 
addresses security futures products, a Registered Options Principal 
is required to complete a firm-element continuing education program 
that addresses security futures products and a principal's 
responsibilities for security futures before such person can 
supervise security futures activities.
    \10\ The term principal is defined in NASD Rule 1021(b) 
(Definition of a Principal).
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    A Registered Options Principal must, prior to or concurrent with 
such registration, be or become qualified pursuant to the NASD Rule 
1030 Series, as either a General Securities Representative (Series 7) 
\11\ or a Corporate Securities Representative (Series 62) and an 
Options Representative (Series 42).
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    \11\ Registration as a United Kingdom Securities Representative 
or Canada Securities Representative is an acceptable alternative 
prerequisite to the General Securities Representative prerequisite.
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    In consultation with a committee of industry representatives, FINRA 
recently undertook a review of the Series 4 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 Registered Options Principal. 
FINRA also is proposing to make changes to the format of the content 
outline.
Current Content Outline
    The current content outline is divided into three sections. The 
following are the three sections and the number of questions associated 
with each of the sections, denoted Section 1 through Section 3:
    1. Options Investment Strategies, 34 questions;
    2. Supervision of Sales Activities and Trading Practices, 75 
questions; and
    3. Supervision of Employees, Business Conduct, and Recordkeeping 
and Reporting Requirements, 16 questions.
    Each section also includes 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.
Proposed Revisions
    FINRA is proposing to divide the content outline into six major job 
functions that are performed by a Registered Options Principal. The 
following are the six major job functions, denoted Function 1 through 
Function 6, with the associated number of questions:
    Function 1: Supervise the Opening of New Options Accounts, 21 
questions;
    Function 2: Supervise Options Account Activities, 25 questions;
    Function 3: Supervise General Options Trading, 30 questions;
    Function 4: Supervise Options Communications, 9 questions;
    Function 5: Implement Practices and Adhere to Regulatory 
Requirements, 12 questions; and
    Function 6: Supervise Associated Persons and Personnel Management 
Activities, 28 questions.
    FINRA 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 Registered Options Principal. The 
questions on the revised Series 4 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 four tasks (1.1-
1.4) associated with Function 1; four tasks (2.1-2.4) associated with 
Function 2; four tasks (3.1-3.4) associated with Function 3; four tasks 
(4.1-4.4) associated with Function 4; two tasks (5.1-5.2) associated 
with Function 5; and four tasks (6.1-6.4) associated with Function 
6.\12\ By way of example, one such task (Task 4.2) is review options 
retail communications and determine appropriate approval.\13\ Further, 
the content outline lists the knowledge required to perform each 
function and associated tasks (e.g., types of retail communications, 
required approvals).\14\ 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. These include 
the applicable FINRA Rules (e.g., FINRA Rule 2220), NASD Rules (e.g., 
NASD Rule 2711(i)) and SEC rules (e.g., Rule 135a under the Securities 
Act of 1933).\15\ FINRA conducted a job analysis study of Registered 
Options 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 content outline. The functions and associated 
tasks, which appear in the revised content outline for the first time, 
reflect the day-to-day activities of a Registered Options Principal.
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    \12\ See Exhibit 3a, Outline Pages 6-22. See footnote 6 
regarding availability of the content outline.
    \13\ See Exhibit 3a, Outline Page 15.
    \14\ See Exhibit 3a, Outline Page 15.
    \15\ See Exhibit 3a, Outline Page 15.
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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 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

[[Page 36390]]

FINRA Rule 4510 Series (Books and Records Requirements), 
respectively).\16\
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    \16\ See Rule Conversion Chart, available at http://www.finra.org/industry/finra-rule-consolidation.
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    FINRA is proposing similar changes to the Series 4 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; \17\ (2) provide more details regarding the purpose of the 
examination; \18\ (3) provide more details on the application 
procedures; \19\ (4) provide more details on the development and 
maintenance of the content outline and examination; \20\ (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 a statistical adjustment process known as equating 
is used in scoring exams; \21\ 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.\22\
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    \17\ See Exhibit 3a, Outline Page 2.
    \18\ See Exhibit 3a, Outline Page 3.
    \19\ See Exhibit 3a, Outline Page 3.
    \20\ See Exhibit 3a, Outline Page 4.
    \21\ See Exhibit 3a, Outline Page 5.
    \22\ See Exhibit 3a, Outline Page 5.
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    The number of questions on the Series 4 examination will remain at 
125 multiple-choice questions,\23\ and candidates will have 195 minutes 
to complete the examination. The test time will change from 180 minutes 
to 195 minutes because pretest items increased from 5 items to 10 
items. Currently, a score of 70 percent is required to pass the 
examination. The passing score will change to 72 percent with the 
revised Series 4 examination program.
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    \23\ Consistent with FINRA's practice of including ``pretest'' 
items on certain qualification examinations, which is designed to 
ensure that new examination items meet acceptable testing standards 
prior to use for scoring purposes, the examination includes 10 
additional, unidentified pretest items that do not contribute 
towards the candidate's score. Therefore, the examination actually 
consists of 135 items, 125 of which are scored. The 10 pretest items 
are randomly distributed throughout the examination.
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Availability of Content Outline
    The current Series 4 content outline is available on FINRA's Web 
site, at www.finra.org/brokerqualifications/exams. The revised Series 4 
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 4 
examination program on September 28, 2015. 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 4 
examination program are consistent with the provisions of Section 
15A(b)(6) of the Act,\24\ 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,\25\ 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 Registered Options Principal.
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    \24\ 15 U.S.C. 78o-3(b)(6).
    \25\ 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 
Registered Options 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 \26\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\27\ 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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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 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-2015-018 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-2015-018. 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

[[Page 36391]]

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 offices 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-2015-018, and should be submitted on or before 
July 15, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-15454 Filed 6-23-15; 8:45 am]
 BILLING CODE 8011-01-P