Document ID: SEC-2015-1463-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-09-03T04:00Z

[Federal Register Volume 80, Number 171 (Thursday, September 3, 2015)]
[Notices]
[Pages 53369-53370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21869]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75783; File No. SR-FINRA-2015-017]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Establish 
the Securities Trader and Securities Trader Principal Registration 
Categories

August 28, 2015.

I. Introduction

    On June 29, 2015, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to establish the Securities Trader and Securities 
Trader Principal registration categories. The proposed rule change was 
published for comment in the Federal Register on July 14, 2015.\3\ The 
Commission received two comment letters on the proposed rule change.\4\ 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 75394 (July 8, 
2015), 80 FR 41119 (``Notice'').
    \4\ See letters to Robert W. Errett, Deputy Secretary, 
Commission, from Kevin Zambrowicz, Associate General Counsel & 
Managing Director, Securities Industry and Financial Markets 
Association, dated July 10, 2015 (``SIFMA Letter'') and Michele Van 
Tassel, President, Association of Registration Management, dated 
July 19, 2015 (``ARM Letter'').
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II. Description of the Proposed Rule Change

A. Securities Trader Registration Category

    Pursuant to NASD Rule 1032(f), each person associated with a FINRA 
member who is included within the definition of ``representative'' in 
NASD Rule 1031 must 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 national 
securities exchange, the person is engaged in proprietary trading, the 
execution of transactions on an agency basis, or the direct supervision 
of such activities.\5\ Currently, before registering as an Equity 
Trader and taking the Series 55 examination, the associated person must 
be registered as either a General Securities Representative (Series 7) 
or a Corporate Securities Representative (Series 62) and have passed 
either of the exams.
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    \5\ There is an exception to this requirement for any person 
associated with a FINRA member whose trading activities are 
conducted principally on behalf of an investment company that is 
registered with the Commission pursuant to the Investment Company 
Act of 1940 and that controls, is controlled by, or is under common 
control with the member.
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    The exchanges, however, currently use the Series 56 examination as 
a qualification standard for several registration categories relating 
to securities trading, including the Proprietary Trader registration 
category, and only NASDAQ recognizes the Series 55 examination as an 
acceptable qualification standard under its registration rules. 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, however FINRA does not 
recognize the exam as an acceptable qualification examination. 
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 may be subject to varying qualification requirements, depending 
on whether their activities take place on a securities exchange or 
over-the-counter.\6\
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    \6\ FINRA notes that there is significant overlap in the content 
of the Series 55 and 56 examinations.
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    In its proposal, FINRA amends NASD Rule 1032(f) to replace the 
Equity Trader registration category and qualification examination 
(Series 55) with a Securities Trader registration category and 
qualification examination (Series 57).\7\ FINRA also amends NASD Rule 
1032(f) to eliminate the prerequisite registration requirement. In 
addition, FINRA amends NASD Rule 1032(f) to provide that a person 
solely registered as a Securities Trader will not be qualified to 
function in any other registration category.
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    \7\ FINRA will develop the Series 57 examination and will file 
the examination with the Commission as part of a separate proposed 
rule change. According to FINRA, while the Series 57 examination 
will include the core knowledge portion of the Series 7 examination, 
the Series 57 examination will also be based on the current job 
functions of securities traders and include elements of the Series 
55 and 56 examination programs. In addition, FINRA will file a 
separate proposed rule change to establish the fee for the Series 57 
examination.
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    As proposed, a person registered as an Equity Trader in the Central 
Registration Depository (``CRD'') system on the effective date of the 
proposed rule change \8\ will be grandfathered as a Securities Trader 
without having to take any additional examinations and without having 
to take any other actions.\9\
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    \8\ The exchanges have indicated that they will 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. The Commission expects the exchanges to file 
their proposed rule changes to effectuate this change before FINRA's 
expected effective date for the Series 57--January 4, 2016.
    \9\ A person who was registered as an Equity Trader in the CRD 
system before the effective date of the proposed rule change will be 
eligible to register as a Securities Trader without having to take 
any additional examinations, provided that no more than two years 
has passed between the date the person was last registered as a 
representative and the date the person registers as a Securities 
Trader.
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B. Securities Trader Principal Registration Category

    Currently, an associated person with direct supervisory 
responsibility over

[[Page 53370]]

the securities trading activities set forth in NASD Rule 1032(f)(1) is 
required to qualify and register as an Equity Trader. FINRA rules do 
not expressly require such person to register in a specific principal 
registration category. On the other hand, most national securities 
exchanges expressly require that an individual associated with an 
exchange member who has supervisory responsibility over proprietary 
trading activities qualify and register as a Proprietary Trader 
Principal.
    In its proposal, FINRA amends NASD Rule 1022(a) to require each 
person associated with a FINRA member who is included within the 
definition of ``principal'' in NASD Rule 1021 and who has supervisory 
responsibility over the securities trading activities described in NASD 
Rule 1032(f)(1) to qualify and register as a Securities Trader 
Principal. To qualify for registration as a Securities Trader 
Principal, a person must first qualify and register as a Securities 
Trader and then pass the General Securities Principal qualification 
examination (Series 24).\10\ As proposed, a person who is qualified and 
registered only as a Securities Trader Principal may only have 
supervisory responsibility over the activities specified in NASD Rule 
1032(f)(1). Moreover, a person who is registered as a General 
Securities Principal will not be qualified to supervise the trading 
activities described in NASD Rule 1032(f)(1), unless the person 
qualifies and registers as a Securities Trader by passing the Series 57 
examination and affirmatively registers as a Securities Trader 
Principal.
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    \10\ The exchanges have indicated that they plan to replace the 
Series 56 examination with the Series 57 examination under their 
respective registration rules, thus 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.
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    As proposed, 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.\11\ FINRA members, however, will be required to 
affirmatively register persons who transition to Securities Trader 
Principals on or after the effective date of the proposed rule 
change.\12\
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    \11\ An individual who was registered as a General Securities 
Principal and an Equity Trader in the CRD system before 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 that person was last registered as a 
principal and the date that person registers as a Securities Trader 
Principal. Moreover, on the effective date of the proposed rule 
change, FINRA will convert Proprietary Trader Principal 
registrations in the CRD system into Securities Trader Principal 
registrations.
    \12\ In connection with the proposals discussed above, 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 
proposes 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.
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III. Comment Letters

    The Commission received two comment letters that support the 
proposed rule change.\13\ These commenters note that the proposal would 
eliminate or reduce redundancies and inefficiencies that exist in the 
current qualification regime.\14\ These commenters also support the 
timeline for implementing the proposed rule change.\15\
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    \13\ See supra note 4.
    \14\ See SIFMA Letter at 3-4 and ARM Letter at 2.
    \15\ See SIFMA Letter at 4 and ARM Letter at 2. However, one 
commenter requests that FINRA provide some flexibility in the 
timeline given the other initiatives that member firms are currently 
undertaking or will undertake in the near future. See SIFMA Letter 
at 4. See also ARM Letter at 2. This commenter also encourages FINRA 
to coordinate the current proposal and the Algorithmic Trading 
proposal that was set forth in FINRA Regulatory Notice 15-06, and to 
implement the Series 57 regime before implementing the Algorithmic 
Trading proposal (assuming the Algorithmic Trading proposal moves 
forward). See SIFMA Letter at 5. Moreover, this commenter encourages 
FINRA to solicit comment on the Series 57 examination content 
through a Regulatory Notice. See id. The Commission notes that FINRA 
will file a proposed rule change to implement the new exam. See 
Notice, supra note 3, at n. 6.
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IV. Discussion and Commission Findings

    After careful review of the proposed rule change and the comment 
letters, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder that are applicable to a national securities 
association.\16\ Specifically, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\17\ which 
requires, among other things, that FINRA rules 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. The Commission also finds that the proposed 
rule change is consistent with Section 15A(g)(3) of the Act,\18\ which 
requires FINRA to prescribe standards of training, experience, and 
competence for persons associated with FINRA members. The proposed rule 
change should harmonize the qualification and registration requirements 
for individuals engaged in securities trading activities across 
different markets and for principals responsible for supervising such 
activities. In addition, by explicitly requiring the registration of 
Securities Trader Principals, as such, the proposal will help FINRA to 
identify and contact principals with supervisory responsibility over 
the securities trading activities described in NASD Rule 1032(f)(1).
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    \16\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78o-3(b)(6).
    \18\ 15 U.S.C. 78o-3(g)(3).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-FINRA-2015-017) be, and 
hereby is, approved.
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    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21869 Filed 9-2-15; 8:45 am]
 BILLING CODE 8011-01-P