Document ID: SEC-2015-1159-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-07-14T04:00Z

[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41119-41123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17172]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75394; File No. SR-FINRA-2015-017]

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

July 8, 2015.
    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 June 29, 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 and 
II below, which Items have been prepared by FINRA. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend NASD Rule 1032(f) (Limited 
Representative--Equity Trader) to replace the Equity Trader 
registration category and qualification examination (Series 55) with a 
Securities Trader registration category and qualification examination 
(Series 57). In addition, the proposed rule change amends NASD Rule 
1022(a) (General Securities Principal) to establish a Securities Trader 
Principal registration category. The proposed rule change also makes 
technical conforming changes to the Form U4 (Uniform Application for 
Securities Industry Registration or Transfer).
    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

[[Page 41120]]

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
    FINRA is proposing to replace the current Equity Trader 
registration category and qualification examination (Series 55) with a 
Securities Trader registration category and qualification examination 
(Series 57). FINRA also is proposing to establish a Securities Trader 
Principal registration category for a principal with supervisory 
responsibility over securities trading activities.\3\ FINRA is 
expecting the national securities exchanges to file similar proposed 
rule changes to replace the Proprietary Trader qualification 
examination (Series 56) with the Securities Trader qualification 
examination (Series 57) in their respective registration rules relating 
to securities trading activities. In addition, FINRA is proposing 
technical conforming changes to the Form U4.
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    \3\ The Commission notes that the term ``securities trading 
activities'' or ``trading activities,'' as used in this filing to 
describe FINRA's Equity Traders, proposed Securities Traders, and 
proposed Securities Trader Principals, refers to the securities 
trading activities described in NASD Rule 1032(f)(1).
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I. Securities Trader Registration Category
    As described in greater detail below, FINRA and the national 
securities exchanges have different qualification standards for 
individuals engaged in securities trading activities.
    Pursuant to NASD Rule 1032(f), each associated person of a member 
who is included within the definition of ``representative'' in NASD 
Rule 1031 (Registration Requirements) is required to 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 securities exchange, such person is 
engaged in proprietary trading, the execution of transactions on an 
agency basis or the direct supervision of such activities. There is an 
exception from the Equity Trader requirement for any associated person 
of a member whose trading activities are conducted principally on 
behalf of an investment company that is registered with the SEC 
pursuant to the Investment Company Act of 1940 and that controls, is 
controlled by, or is under common control with the member. The Series 
55 examination currently qualifies an associated person to function as 
an Equity Trader. Before registration as an Equity Trader may become 
effective, the associated person must be registered as either a General 
Securities Representative (Series 7) or Corporate Securities 
Representative (Series 62). FINRA does not recognize the Series 56 
examination as an acceptable qualification standard for associated 
persons engaged in securities trading.
    In contrast, the exchanges currently use the Series 56 examination 
as a qualification standard for several registration categories 
relating to securities trading, including the Proprietary Trader 
registration category,\4\ and most do not recognize the Series 55 
examination as an acceptable qualification standard under their 
respective registration rules.\5\ 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, but, as noted above, it is not recognized by 
FINRA as an acceptable qualification examination for associated persons 
engaged in securities trading. 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 are subject to varying 
qualification requirements depending on whether their activities take 
place on a securities exchange or over-the-counter. Yet, there is 
significant overlap in the content of the Series 55 and 56 examinations 
because the examinations test the core knowledge required of 
individuals engaged in trading activities as well as the self-
regulatory organization (SRO) rules, including trading rules, that are 
common across SROs.
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    \4\ For instance, under the rules of the Chicago Board Options 
Exchange (CBOE), an individual trading permit holder or individual 
associated person who is engaged in proprietary trading, market-
making or effecting transactions on behalf of a broker-dealer is 
required to register and qualify as a Proprietary Trader. See 
Interpretation and Policy .08(a)(1) to CBOE Rule 3.6A (Qualification 
and Registration of Trading Permit Holders and Associated Persons). 
To qualify as a Proprietary Trader under the CBOE rules, an 
individual must pass the Series 56 examination or be registered as a 
General Securities Representative. See Interpretation and Policy 
.08(b) to CBOE Rule 3.6A.
    \5\ NASDAQ recognizes the Series 55 examination. Specifically, 
NASDAQ members that are FINRA members are also subject to the Equity 
Trader registration requirement with respect to transactions on 
NASDAQ, and thus must pass the Series 55 qualification examination 
to engage in such activities. See NASDAQ Rule 1032(f) (Limited 
Representative--Equity Trader).
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    To eliminate duplication and a fragmented qualification standard 
for individuals engaged in trading activities, FINRA, in consultation 
with the national securities exchanges, is proposing to amend NASD Rule 
1032(f) to replace the Equity Trader registration category and 
qualification examination with a Securities Trader registration 
category and qualification examination. As part of the proposed rule 
change, FINRA is proposing to develop the Securities Trader 
qualification examination (Series 57), which will be based on the 
current job functions of securities traders, including elements of the 
Series 55 and 56 examination programs,\6\ and require associated 
persons to pass the Series 57 examination to register as Securities 
Traders. FINRA understands that the exchanges also plan to 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. To provide consistency with the rules of the national 
securities exchanges and to develop a more tailored examination, FINRA 
is proposing to eliminate the current prerequisite registration 
requirement in NASD Rule 1032(f) (General Securities Representative or 
Corporate Securities Representative prerequisite registration) and, 
instead, to include in the Series 57 examination the core knowledge 
portion of the General Securities Representative examination (Series 
7).
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    \6\ The Series 55 examination consists of 100 scored multiple-
choice questions and the testing time is 3 hours. The Series 56 
examination consists of 100 scored multiple-choice questions and the 
testing time is 2 hours and 30 minutes. FINRA will develop the 
Series 57 examination, including the appropriate topics, depth of 
knowledge, number of questions, time allotted and passing score, and 
will file the examination with the SEC as part of a separate 
proposed rule change.
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    Further, FINRA is proposing to amend NASD Rule 1032(f) to provide 
that an associated person registered as a Securities Trader will not be 
qualified to function in any other registered capacity, unless he or 
she is qualified and registered in that other registration category. 
For instance, a person registered as a Securities Trader will not be 
able to engage in any retail or institutional sales activities, unless 
he or she is qualified and registered in the appropriate registration 
category, such as a General Securities Representative.
    A person registered as an Equity Trader in the Central Registration 
Depository (CRD[supreg]) system on the effective date of the proposed 
rule change will be grandfathered as a Securities Trader without having 
to take any additional examinations and

[[Page 41121]]

without having to take any other actions. In addition, individuals who 
were registered as Equity Traders in the CRD system prior to the 
effective date of the proposed rule change will be eligible to register 
as Securities Traders without having to take any additional 
examinations, provided that no more than two years has passed between 
the date they were last registered as a representative and the date 
they register as a Securities Trader.\7\
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    \7\ See NASD Rule 1031(c) (Requirements for Examination on Lapse 
of Registration).
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II. Securities Trader Principal Registration Category
    FINRA and the national securities exchanges also have different 
qualification standards for individuals responsible for the supervision 
of securities trading activities.
    Currently, under FINRA rules, an associated person with direct 
supervisory responsibility over the securities trading activities set 
forth in NASD Rule 1032(f) is required to qualify and register as an 
Equity Trader.\8\ However, FINRA rules do not expressly require such 
persons to register in a specific principal registration category.\9\ 
Conversely, most national securities exchanges expressly require that 
an individual associated with an exchange member with supervisory 
responsibility over proprietary trading activities qualify and register 
as a Proprietary Trader Principal.\10\
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    \8\ See NASD Rule 1032(f) and FINRA Rule 3110(a) (Supervisory 
System).
    \9\ In general, a General Securities Principal with supervisory 
responsibility over securities trading activities is currently 
required to qualify and register as an Equity Trader.
    \10\ For instance, under CBOE rules, an individual trading 
permit holder or individual associated person who (1) supervises or 
monitors proprietary trading, market-making or brokerage activities 
for broker-dealers; (2) supervises or trains those engaged in 
proprietary trading, market-making or effecting transactions on 
behalf of a broker-dealer, with respect to those activities; or (3) 
is an officer, partner or director of a trading permit holder or 
organization is required to register and qualify as a Proprietary 
Trader Principal. See Interpretation and Policy .08(a)(2) to CBOE 
Rule 3.6A. To qualify for registration as a Proprietary Trader 
Principal under the CBOE rules, an individual must be registered as 
a Proprietary Trader and pass the General Securities Principal 
qualification examination (Series 24) (passing the General 
Securities Principal Sales Supervisor Module examination (Series 
23), in combination with qualification and registration as a General 
Securities Sales Supervisor (Series 9/10), is an acceptable 
qualification alternative to the Series 24 examination). See 
Interpretation and Policy .08(b) to CBOE Rule 3.6A.
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    To harmonize FINRA rules with the rules of the exchanges regarding 
the registration and qualification of individuals responsible for 
supervising securities trading activities, FINRA is proposing to amend 
NASD Rule 1022(a) to establish a Securities Trader Principal 
registration category and require each associated person of a member 
who is included within the definition of ``principal'' in NASD Rule 
1021 (Registration Requirements) with supervisory responsibility over 
the securities trading activities described in NASD Rule 1032(f) to 
qualify and register as a Securities Trader Principal. The proposed 
rule change will also allow FINRA to more easily track principals with 
supervisory responsibility over securities trading activities. To 
qualify for registration as a Securities Trader Principal, an 
individual must be registered as a Securities Trader and pass the 
General Securities Principal qualification examination. As stated 
above, FINRA understands that the exchanges plan to replace the Series 
56 examination with the Series 57 examination under their respective 
registration rules. Therefore, 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.
    A person registering as a Securities Trader Principal will be 
required to pass the General Securities Principal examination, but will 
not be eligible to register as a General Securities Principal unless 
the person passes the appropriate prerequisite examination for General 
Securities Principal registration, such as the Series 7 examination. 
Therefore, FINRA is proposing to amend NASD Rule 1022(a) to clarify 
that a person qualified and registered as a Securities Trader Principal 
may only have supervisory responsibility over the activities specified 
in NASD Rule 1032(f), unless such person is separately qualified and 
registered in another appropriate principal registration category, such 
as the General Securities Principal registration category. Conversely, 
the proposed rule change clarifies that a person registered as a 
General Securities Principal will not be qualified to supervise the 
trading activities described in NASD Rule 1032(f), unless he or she 
qualifies and registers as a Securities Trader (by passing the Series 
57 examination) and affirmatively registers as a Securities Trader 
Principal.
    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. An individual who 
was registered as a General Securities Principal and an Equity Trader 
in the CRD system prior to 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 they were last 
registered as a principal and the date they register as a Securities 
Trader Principal.\11\ Members, however, will be required to 
affirmatively register persons transitioning to the proposed 
registration category as Securities Trader Principals on or after the 
effective date of the proposed rule change.
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    \11\ See NASD Rule 1021(c) (Requirements for Examination on 
Lapse of Registration).
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III. Technical Conforming Changes to the Form U4
    As part of the proposed rule change, 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 is proposing 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.\12\
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    \12\ FINRA will file a separate proposed rule change to amend 
Section 4(c) of Schedule A to the FINRA By-Laws to establish the fee 
for the proposed Securities Trader qualification examination.
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    If the Commission approves the filing, FINRA will announce the 
effective date of the proposed rule change in a Regulatory Notice to be 
published no later than 90 days following Commission approval. The 
effective date will be no later than 270 days following publication of 
the Regulatory Notice announcing Commission approval, but FINRA intends 
for the effective date to be January 4, 2016.
 2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\13\ 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

[[Page 41122]]

public interest, and Section 15A(g)(3) of the Act,\14\ which authorizes 
FINRA to prescribe standards of training, experience, and competence 
for persons associated with FINRA members.
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    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ 15 U.S.C. 78o-3(g)(3).
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    FINRA believes that the proposed rule change will streamline, and 
bring consistency and uniformity to, the qualification and registration 
requirements for individuals engaged in securities trading activities 
across different markets and for principals responsible for supervising 
such activities, which will, in turn, improve members' registration and 
compliance efforts. Further, the proposed rule change's requirement to 
affirmatively register principals who have supervisory responsibility 
over trading activities as Securities Trader Principals will enhance 
FINRA's ability to more easily identify and, if necessary, contact 
those principals with supervisory responsibilities over trading 
activities.

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.
    FINRA believes that the proposed rule change relating to Securities 
Traders, which FINRA is filing in anticipation of the exchanges filing 
similar proposed rule changes to replace the Series 56 examination with 
the Series 57 examination under their respective registration rules, 
will reduce the burden on associated persons currently required to be 
registered as traders by harmonizing the registration requirements for 
representatives engaged in securities trading activities across 
different markets. The proposed rule change would further reduce the 
burden on associated persons in terms of the number of qualification 
examinations that they would be required to take under FINRA rules to 
be eligible to engage in securities trading activities in the future. 
Under FINRA rules, an associated person engaged in securities trading 
activities is currently required to qualify and register as a General 
Securities Representative (or Corporate Securities Representative) and 
an Equity Trader. Under the proposed rule change, associated persons 
would be eligible to engage in securities trading activities by 
registering as Securities Traders and passing a single comprehensive 
qualification examination, the Series 57 examination, rather than 
having to register in multiple categories and pass multiple 
qualification examinations as currently required under FINRA rules. 
This will benefit, on an annual basis, the approximately 1,000 
associated persons who currently take the Series 55 examination.
    Similar to the proposed rule change relating to Securities Traders, 
FINRA believes that the proposed rule change relating to Securities 
Trader Principals will reduce the burden on associated persons by 
harmonizing the registration requirements for principals engaged in 
securities trading activities across different markets. Further, the 
proposed rule change will reduce the burden on such principals in terms 
of the number of qualification examinations that they would be required 
to take under FINRA rules to be eligible to supervise securities 
trading activities in the future. Under FINRA rules, a General 
Securities Principal with supervisory responsibility over securities 
trading activities is currently required to qualify and register as a 
General Securities Representative (or Corporate Securities 
Representative) and an Equity Trader, in addition to qualifying and 
registering as a General Securities Principal. The proposed rule change 
would reduce the number of qualification examinations that would be 
required of a principal to be eligible to supervise securities trading 
activities under FINRA rules, by requiring such principal to register 
as a Securities Trader and pass the General Securities Principal 
qualification examination. The individuals that would benefit from the 
proposed rule change relating to Securities Trader Principals are a 
subset of the individuals that would benefit from the proposed rule 
change relating to Securities Traders.
    Further, the proposed rule change does not impose any additional 
examination burdens on persons who are already registered. There is no 
obligation to take the proposed Series 57 examination in order to 
continue in their present duties, so the proposed rule change is not 
expected to disadvantage current registered persons relative to new 
entrants in this regard.
    Moreover, FINRA does not believe that the proposed requirement to 
affirmatively register current and new principals who have supervisory 
responsibility over trading activities as Securities Trader Principals 
would be unduly burdensome for members, and it believes that the 
benefits of the proposed requirement, including the enhancement of 
FINRA's ability to promptly identify and, if necessary, contact those 
principals with supervisory responsibilities over trading activities, 
outweigh any additional burden on firms.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2015-017 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-2015-017. 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

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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 
the 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-2015-017 and should be submitted on or before August 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17172 Filed 7-13-15; 8:45 am]
 BILLING CODE 8011-01-P