Document ID: SEC-2014-0695-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-04-29T04:00Z

[Federal Register Volume 79, Number 82 (Tuesday, April 29, 2014)]
[Notices]
[Pages 24047-24049]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09672]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71998; File No. SR-FINRA-2014-015]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Revise the Series 26 Examination Program

April 23, 2014.
    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 April 15, 2014, 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 Investment Company and Variable Contracts 
Products Principal (Series 26) 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 Investment Company and 
Variable Contracts Products 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 26 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 26 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.
    \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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    Pursuant to NASD Rule 1022(d) \9\ (Limited Principal--Investment 
Company and Variable Contracts Products), if a principal's activities 
are limited solely to redeemable securities of companies registered 
under the Investment Company Act of 1940 (``Investment Company Act''), 
securities of closed-end companies registered under the Investment 
Company Act during the period of original distribution, and variable 
contracts and insurance premium funding programs and other contracts 
issued by an insurance company (except contracts that are exempt 
securities pursuant to Section 3(a)(8) of the Securities Act of 1933), 
and he is registered as either a General Securities Representative or a 
Limited Representative--Investment Company and Variable Contracts 
Products, the principal may register and qualify as an Investment 
Company and Variable Contracts Products Principal.\10\ The Series 26 
examination qualifies an individual to function as an Investment 
Company and Variable Contracts Products Principal.
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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).
    \10\ See also Incorporated NYSE Rule 345.15(3) and Incorporated 
NYSE Rule Interpretation 345.15/02.

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[[Page 24048]]

    In consultation with a committee of industry representatives, FINRA 
recently undertook a review of the Series 26 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 Investment Company and 
Variable Contracts Products 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. Hiring and Qualifications: Determine Good Character, Business 
Repute, Qualifications and Experience, 11 questions;
    2. Training of Representatives: Assure Representatives Have 
Necessary Knowledge to Perform Their Duties, 19 questions;
    3. Supervision: Develop, Maintain and Adhere to Required 
Supervisory Structure, 24 questions;
    4. Sales Practices: Assure Sales Are Made in Compliance with Firm 
and Securities Rules and Regulations, 32 questions; and
    5. Business Processing and Recordkeeping Rules: Assure Transactions 
Are Executed in Accordance with Firm and Regulatory Requirements 24 
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
    FINRA is proposing to divide the content outline into three major 
job functions that are performed by an Investment Company and Variable 
Contracts Products Principal. The following are the three major job 
functions, denoted Function 1 through Function 3, with the associated 
number of questions:
    Function 1: Personnel Management Activities and Registration of the 
Broker-Dealer, 16 questions;
    Function 2: Supervises Associated Persons and Oversees Sales 
Practices, 49 questions; and
    Function 3: Oversees Compliance and Business Processes of the 
Broker-Dealer and its Offices, 45 questions.
    FINRA is also 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 Principal. The questions on the revised 
Series 26 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 two tasks (1.1--
1.2) associated with Function 1; six tasks (2.1--2.6) associated with 
Function 2; and six tasks (3.1--3.6) associated with Function 3.\11\ By 
way of example, one such task (Task 2.1) is monitors, supervises and 
documents the sales activities of associated persons to achieve 
compliance with securities industry rules and regulations and firm 
policies and provides feedback regarding product knowledge and 
performance.\12\ Further, the outline lists the knowledge required to 
perform each function and associated tasks (e.g., standards of conduct 
and prohibited activities).\13\ 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 2090), NASD Rules (e.g., 
NASD Rule 2510) and SEC rules (e.g., SEA Rule 15c1-7).\14\ FINRA 
conducted a job analysis study of Investment Company and Variable 
Contracts Products 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 outline. The functions and 
associated tasks, which appear in the revised outline for the first 
time, reflect the day-to-day activities of an Investment Company and 
Variable Contracts Products Principal.
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    \11\ See Exhibit 3a, Outline Pages 6-18. The Commission notes 
that Exhibit 3a is an exhibit to the filing, not to this Notice.
    \12\ See Exhibit 3a, Outline Page 9.
    \13\ See Exhibit 3a, Outline Page 9.
    \14\ See Exhibit 3a, Outline Pages [sic] 11.
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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 FINRA Rule 4510 Series (Books and 
Records Requirements), respectively).\15\
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    \15\ 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 26 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; \16\ (2) provide more details regarding the purpose of the 
examination; \17\ (3) provide more details on the application 
procedures; \18\ (4) provide more details on the development and 
maintenance of the content outline and examination; \19\ (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; \20\ 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.\21\
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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 4.
    \20\ See Exhibit 3a, Outline Page 5.
    \21\ See Exhibit 3a, Outline Page 5.
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    The number of questions on the Series 26 examination will remain at 
110 multiple-choice questions,\22\ and candidates will continue to have 
165 minutes to complete the examination. Currently, a score of 70 
percent is required to pass the examination. The passing score will 
remain the same.
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    \22\ Consistent with FINRA's practice of including ``pre-test'' 
questions on certain qualification examinations, which is designed 
to ensure that new examination questions meet acceptable testing 
standards prior to use for scoring purposes, the examination 
includes ten additional, unidentified pre-test questions that do not 
contribute towards the candidate's score. Therefore, the examination 
actually consists of 120 questions, 110 of which are scored. The ten 
pre-test questions are randomly distributed throughout the 
examination.

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[[Page 24049]]

Availability of Content Outlines
    The current Series 26 content outline is available on FINRA's Web 
site, at www.finra.org/brokerqualifications/exams. The revised Series 
26 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 26 
examination program on June 16, 2014. 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 26 
examination program are consistent with the provisions of Section 
15A(b)(6) of the Act,\23\ 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,\24\ 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 Investment Company and Variable 
Contracts Products Principal.
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    \23\ 15 U.S.C. 78o-3(b)(6).
    \24\ 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 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 \25\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\26\ 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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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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-2014-015 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-2014-015. 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-2014-015 and should be 
submitted on or before May 20, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09672 Filed 4-28-14; 8:45 am]
BILLING CODE 8011-01-P