Document ID: SEC-2018-0337-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-02-27T05:00Z

[Federal Register Volume 83, Number 39 (Tuesday, February 27, 2018)]
[Notices]
[Pages 8533-8535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03893]

[[Page 8533]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82754; File No. SR-FINRA-2018-007]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Revise the Investment Company and Variable 
Contracts Products Representative (Series 6) 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 Investment Company and Variable Contracts 
Products Representative (Series 6) 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. 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 6 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 6 content outline is attached.\6\ The revised 
Series 6 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 
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 6 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 
Investment Company and Variable Contracts Products Representative 
(Series 6) 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 an Investment Company and 
Variable Contracts Products Representative. As a result of this review, 
FINRA also is proposing to revise the Series 6 content outline to 
reflect changes to the laws, rules and regulations covered by the 
examination. In addition, FINRA is proposing to make changes to the 
format of the Series 6 content outline.
    Beginning on October 1, 2018, new applicants seeking to register as

[[Page 8534]]

Investment Company and Variable Contracts Products Representatives must 
pass the SIE examination and the revised Investment Company and 
Variable Contracts Products Representative (Series 6) examination.

Current Content Outline

    The current Series 6 content outline is divided into four major job 
functions that are performed by an Investment Company and Variable 
Contracts Products Representative. The following are the four major job 
functions, denoted Function 1 through Function 4, with the associated 
number of questions:
    Function 1: Regulatory fundamentals and business development, 22 
questions;
    Function 2: Evaluates customers' financial information, identifies 
investment objectives, provides information on investment products, and 
makes suitable recommendations, 47 questions;
    Function 3: Opens, maintains, transfers and closes accounts and 
retains appropriate account records, 21 questions; and
    Function 4: Obtains, verifies, and confirms customer purchase and 
sale instructions, 10 questions.
    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; three tasks (3.1-3.3) associated with Function 3; and two 
tasks (4.1-4.2) associated with Function 4. For example, one such task 
(Task 2.1) is to gather customers' financial and non-financial 
information to identify, analyze, and assess risk tolerance, investment 
experience and sophistication level. Further, the content outline lists 
the knowledge required to perform each function and associated tasks 
(e.g., account authorizations and legal documents). 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 applicable federal securities laws, as well as 
FINRA and other self-regulatory organization rules and regulations. The 
current content outline also includes a preface (e.g., table of 
contents, details regarding the purpose of the examination and 
eligibility requirements), 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 6 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 6 examination. As a result, the 
revised Series 6 examination will test knowledge specific to the day-
to-day activities, responsibilities and job functions of an Investment 
Company and Variable Contracts Products Representative.
    Further, FINRA is proposing to make changes to the major job 
functions that are performed by an Investment Company and Variable 
Contracts Products Representative. The proposed change aligns the major 
job functions performed by an Investment Company and Variable Contracts 
Products Representative with the major job functions performed by other 
sales representatives, including General Securities Representatives, 
Direct Participation Programs Representatives and Private Securities 
Offerings Representatives. The following are the revised 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, 12 questions;
    Function 2: Opens Accounts After Obtaining and Evaluating 
Customers' Financial Profile and Investment Objectives, 8 questions;
    Function 3: Provides Customers with Information About Investments, 
Makes Suitable Recommendations, Transfers Assets and Maintains 
Appropriate Records, 25 questions; and
    Function 4: Obtains and Verifies Customers' Purchase and Sales 
Instructions; Processes, Completes and Confirms Transactions, 5 
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 an Investment Company and 
Variable Contracts Products Representative. The questions on the 
revised Series 6 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.
    Further, FINRA is proposing to make changes to the specific tasks 
associated with performing each function. There are two tasks (1.1-1.2) 
associated with Function 1; \13\ four tasks (2.1-2.4) associated with 
Function 2; \14\ four tasks (3.1-3.4) associated with Function 3; \15\ 
and three tasks (4.1-4.3) associated with Function 4.\16\ 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.\17\ The content outline also lists 
the knowledge required to perform each revised 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 revised 
function and associated tasks (e.g., FINRA Rule 2111 (Suitability)).
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    \13\ See Exhibit 3a, Outline Pages 3-4. The outline is attached 
as Exhibit 3a to the 19b-4 form.
    \14\ See Exhibit 3a, Outline Pages 5-6.
    \15\ See Exhibit 3a, Outline Pages 7-10.
    \16\ See Exhibit 3a, Outline Pages 11-12.
    \17\ 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 6 selection 
specifications and question bank.
    Finally, FINRA is proposing to make changes to the format of the 
content outline, including to the preface, sample questions and 
reference materials.\18\ 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.\19\
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    \18\ FINRA is proposing similar changes to the content outlines 
for other representative-level examinations.
    \19\ 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 6 examination will be reduced from 100 questions to 50 
questions.\20\

[[Page 8535]]

Further, the test time, which is the amount of time candidates will 
have to complete the examination, will be reduced from two hours and 15 
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 6 examination on its website, at www.finra.org, 
prior to its first administration.
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    \20\ Consistent with FINRA's practice of including ``pretest'' 
questions on examinations, the Series 6 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 6 
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 6 content outline is available on FINRA's 
website. The revised Series 6 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 6 
examination program are consistent with the provisions of Section 
15A(b)(6) of the Act,\21\ 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,\22\ 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 6 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.
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    \21\ 15 U.S.C. 78o-3(b)(6).
    \22\ 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 
Investment Company and Variable Contracts Products Representative 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 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.\23\
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    \23\ 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 \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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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-2018-007 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-2018-007. 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-2018-007 and should be submitted 
on or before March 20, 2018.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03893 Filed 2-26-18; 8:45 am]
 BILLING CODE 8011-01-P