Document ID: SEC-2013-1550-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-09-03T04:00Z

[Federal Register Volume 78, Number 170 (Tuesday, September 3, 2013)]
[Notices]
[Pages 54359-54362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21296]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70268; File No. SR-FINRA-2013-032]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Revise the Series 16 Examination Program

August 27, 2013.
    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 August 20, 2103, 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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[[Page 54360]]

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 Supervisory Analyst (Series 16) 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 Supervisory Analyst. 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 16 question bank. Based on instructions 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 16 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 as Exhibit 3a, 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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    Incorporated NYSE Rules 344, 344.11 and 472(a)(2) \9\ and NYSE Rule 
Interpretations 344/03 and/04 require an individual who is responsible 
for approving research reports at a Dual Member to be registered and 
qualified as a Supervisory Analyst.\10\ Such person is required to 
present evidence of appropriate experience (which is having at least 
three years prior experience within the immediately preceding six years 
involving securities or financial analysis) and pass the Supervisory 
Analyst (Series 16) qualification examination. Rather than passing the 
entire Supervisory Analyst qualification examination, such person may 
obtain a waiver from Part II of the Supervisory Analyst qualification 
examination upon verification that the person has passed Level I of the 
Chartered Financial Analyst (``CFA'') examination. NYSE Rule 472(a)(2) 
further provides that where a Supervisory Analyst lacks technical 
expertise in a particular product area that is the subject of a 
research report, the content in the report may be co-approved by a 
product specialist; if no such expertise resides within the member, the 
rule requires the member to arrange approval by a qualified outside 
Supervisory Analyst.
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    \9\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process). For convenience, the Incorporated NYSE Rules 
are hereinafter referred to as the NYSE Rules.
    \10\ In addition, pursuant to FINRA Rules and NASD Rules, a 
Supervisory Analyst may approve: (1) Research reports on debt and 
equity securities; (2) retail communications that are excepted from 
the definition of ``research report'' under NASD Rule 2711(a)(9)(A); 
(3) other research that does not meet that definition of ``research 
report'' under NASD Rule 2711(a)(9), provided that the Supervisory 
Analyst has technical expertise in the particular product area and 
any other required registrations; (4) third-party research reports; 
and (5) globally branded research reports prepared by foreign 
research analysts, as a condition for an exemption from the research 
analyst registration requirements. See NASD Rule 1050(f)(3)(A); 
FINRA Rule 2210(b)(1)(B) and NASD Rule 2711(h)(13)(C). Accordingly, 
in addition to testing knowledge of applicable NYSE Rules, the 
Series 16 examination program tests knowledge of applicable FINRA 
Rules and NASD Rules.
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    In consultation with a committee of industry representatives, FINRA 
recently undertook a review of the Series 16 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 Supervisory Analyst. FINRA 
also is proposing to make changes to the format of the content outline.
    Current Outline
    The current content outline is divided into two critical parts, 
each of which has 50 questions:
    Part I: Regulatory Administration; and
    Part II: Securities Analysis.
    Part I includes the respective applicable laws, rules and 
regulations, and Part II includes technical and analytical knowledge. 
The current outline also includes a preface (addressing, among other 
things, the purpose, administration and scoring of the examination), 
sample questions and reference material.
    Proposed Revisions
    FINRA is proposing to rename Part I and Part II of the outline and 
include two major job functions under each part. The following are the 
renamed parts and major job functions, with the associated number of 
questions:
    Part I. Regulations:
    Function 1: Review and approve research analysts' communications to 
ensure compliance with applicable SEC and FINRA rules and regulations, 
and firm policies and procedures (34 questions); and
    Function 2: Serve as liaison between the Research Department and 
other internal and external parties (16 questions).
    Part II. Valuation of Securities:
    Function 1: Review the content of the report to assess the 
accuracy, consistency and sources of data and calculations included in 
the report (16 questions); and
    Function 2: Review the content of the report to ensure a reasonable 
basis exists for the analyst's conclusions (e.g., price targets, 
recommendations, ratings, estimates, and valuation parameters) (34 
questions).

[[Page 54361]]

    Each function also includes specific tasks describing activities 
associated with performing that function. There are five tasks (T1 
through T5) associated with Part I, Function 1; four tasks (T6 through 
T9) associated with Part I, Function 2; three tasks (T1 through T3) 
associated with Part II, Function 1; and six tasks (T4 through T9) 
associated with Part II, Function 2.\11\ By way of example, one such 
task (T5, Part I, Function 1) is to verify that a research report 
includes all applicable required disclosures.\12\ In addition, the 
outline lists with respect to Part I the laws, rules and regulations a 
candidate is expected to know to perform the functions and associated 
tasks outlined in that part. These include the applicable FINRA Rules 
(e.g., FINRA Rule 2210), NASD Rules (e.g., NASD Rule 2711), NYSE Rules 
(e.g., NYSE Rule 344) and SEC rules (e.g., Securities Act Rule 
137).\13\ Further, the outline lists with respect to Part II the 
technical and analytical knowledge (e.g., analysis of packaged 
securities) required to perform the functions and associated tasks 
outlined in that part.\14\
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    \11\ See Exhibit 3a, Outline Pages 7 and 10.
    \12\ See Exhibit 3a, Outline Page 7.
    \13\ See Exhibit 3a, Outline Pages 7-9.
    \14\ See Exhibit 3a, Outline Pages 10-13.
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    FINRA conducted a job analysis study of Supervisory Analysts, which 
included the use of a survey, in developing the functions and tasks and 
updating the required knowledge set forth in the revised outline. The 
functions and tasks, which appear in the revised outline for the first 
time, reflect the day-to-day activities of a Supervisory Analyst.
    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 IM-2110-4 (Trading Ahead of 
Research Reports) was consolidated as FINRA Rule 5280 (Trading Ahead of 
Research Reports)).\15\
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    \15\ See also 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 16 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 
material. Among other changes, FINRA is proposing to: (1) Add a table 
of contents; \16\ (2) provide more details regarding the purpose of the 
examination and a list of the types of communications that can be 
approved by a Supervisory Analyst; \17\ (3) provide more details on the 
required experience to be eligible to register as a Supervisory Analyst 
and a list of examples of appropriate experience; \18\ (4) 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; \19\ (5) note the 
required waiting periods for retaking failed examinations; \20\(6) note 
that each candidate will receive a score report at the end of the test 
session, which will indicate a pass or fail status and include a score 
profile listing the candidate's performance on each major content area 
covered on the examination; \21\ and (7) delete Appendix 1, Financial 
Ratios and Formulas Reference, which provided a sampling of the types 
of ratios and formulas that relate to Part II of the outline.
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    \16\ See Exhibit 3a, Outline Page 2.
    \17\ See Exhibit 3a, Outline Page 3.
    \18\ See Exhibit 3a, Outline Page 3.
    \19\ See Exhibit 3a, Outline Page 5.
    \20\ See Exhibit 3a, Outline Page 6.
    \21\ See Exhibit 3a, Outline Page 6.
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    The number of questions on the Series 16 examination will remain at 
100 multiple-choice questions (50 multiple-choice questions for each 
part), and candidates will continue to have one and one-half hours to 
complete Part I of the examination and two hours to complete Part II. 
Currently, a score of 72 percent is required to pass Part I of the 
examination, and a score of 74 percent is required to pass Part II. The 
passing scores will remain the same.
    Availability of Content Outlines
    The current Series 16 content outline is available on FINRA's Web 
site, at www.finra.org/brokerqualifications/exams. The revised Series 
16 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 16 
examination program on October 28, 2013. 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 16 
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. 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 Supervisory Analyst.
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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 
Supervisory Analysts and tests knowledge of the most current laws, 
rules, regulations and skills relevant to those functions and 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 \24\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\25\ 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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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(1).

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[[Page 54362]]

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-2013-032 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2013-032. 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2013-032 and should be 
submitted on or before September 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21296 Filed 8-30-13; 8:45 am]
BILLING CODE 8011-01-P