Document ID: SEC-2018-0338-0001
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 8559-8561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03890]

[[Page 8559]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82751; File No. SR-FINRA-2018-005]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Revise the Research Analyst (Series 86 and 87) 
Examinations

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 9, 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 Research Analyst (Series 86 and 87) examinations 
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 examinations 
and to incorporate the functions and associated tasks currently 
performed by a Research 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 86 and 87 question banks. 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 banks. 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 banks are 
available for SEC review.
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    The revised Series 86 and 87 content outline is attached.\6\ The 
revised Series 86 and 87 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 86 and 87 examinations, FINRA will file with the Commission 
for immediate effectiveness the content outlines for the other 
revised representative-level qualification examinations.
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    Currently, an individual registering as an equity Research Analyst 
must satisfy the General Securities Representative co-requisite 
registration and pass the Research Analyst (Series 86 and 87) 
examinations. The purpose of the current co-requisite is to ensure that 
Research Analysts have general securities knowledge, because the Series 
86 and 87 examinations do not cover such knowledge. As part of the 
restructuring process, FINRA has eliminated the requirement that 
individuals registering as Research Analysts satisfy the General 
Securities Representative co-requisite registration. Instead, 
individuals registering as Research Analysts will be required to pass 
the SIE examination, which will

[[Page 8560]]

cover general securities knowledge, as a co-requisite.
    Further, FINRA, in consultation with a committee of industry 
representatives, undertook a review of the Research Analyst (Series 86 
and 87) examinations to revise the Series 86 and 87 content outline to 
reflect changes to the laws, rules and regulations covered by the 
examinations and to incorporate the functions and associated tasks 
currently performed by a Research Analyst. The proposed change will 
align the organization of the Series 86 and 87 content outline with the 
organization of the content outlines of the other revised 
representative-level examinations.\13\ FINRA also is proposing to make 
other changes to the format of the Series 86 and 87 content outline.
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    \13\ FINRA currently has organized several FINRA qualification 
examinations, such as the Securities Trader (Series 57) examination, 
based on the functions that are performed by the respective 
registered persons and the associated tasks. FINRA is proposing 
similar layouts for all of the representative-level examinations, 
including the Series 86 and 87 examinations.
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    Beginning on October 1, 2018, new applicants seeking to register as 
Research Analysts must pass the SIE examination as well as the revised 
Research Analyst (Series 86 and 87) examinations.
Current Content Outline
    The Series 86 examination contains the analysis portion of the 
Research Analyst examinations and tests knowledge of fundamental 
analysis and valuation of equity securities. The Series 87 examination 
contains the regulatory portion of the Research Analyst examinations 
and tests knowledge of applicable rules and regulations pertaining to 
equity research. The current Series 86 and 87 content outline is 
divided into four sections. The Series 86 covers two sections and the 
Series 87 covers the other two sections. The following are the four 
sections, denoted Section 1 through Section 4, with the associated 
number of questions:
Series 86
    1. Information and Data Collection, 10 questions;
    2. Analysis, Modeling and Valuation, 90 questions;
Series 87
    3. Preparation of Research Reports, 32 questions; and
    4. Dissemination of Information, 18 questions.

    In addition, each section includes references to the applicable 
laws, rules and regulations associated with that section. The current 
content outline also includes a preface (addressing, among other 
things, the purpose, administration and scoring of the examination), 
sample questions and reference materials.
Revised Content Outline
    FINRA is proposing to update the content outline to reflect changes 
to the laws, rules and regulations covered by the examinations and to 
incorporate the functions and associated tasks currently performed by a 
Research Analyst. However, FINRA is not proposing to adjust the number 
of questions on the examinations or to adjust the number of questions 
assigned to each section on the current outline. Further, the proposed 
functions match the sections on the current outline. The following are 
the four major job functions, denoted Function 1 through Function 4, 
with the associated number of questions:
Series 86
    Function 1: Information and Data Collection, 10 questions;
    Function 2: Analysis, Modeling and Valuation, 90 questions;
Series 87
    Function 3: Preparation of Research Reports, 32 questions; and
    Function 4: Dissemination of Information, 18 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; \14\ four tasks (2.1-2.4) associated 
with Function 2;\15\ four tasks (3.1-3.4) associated with Function 3; 
\16\ and five tasks (4.1-4.5) associated with Function 4.\17\ For 
example, one such task (Task 1.1) is gathering macroeconomic data.\18\ 
Further, the content outline lists the knowledge required to perform 
each function and associated tasks (e.g., short- and long-term trends 
in the economy, demographic information, domestic and international 
issues). 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 (e.g., FINRA Rule 2241 (Research 
Analysts and Research Reports)).
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    \14\ See Exhibit 3a, Outline Page 3. The outline is attached as 
Exhibit 3a to the 19b-4 form.
    \15\ See Exhibit 3a, Outline Pages 4-6.
    \16\ See Exhibit 3a, Outline Pages 7-8.
    \17\ See Exhibit 3a, Outline Pages 9-10.
    \18\ See Exhibit 3a, Outline Page 3.
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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 2711 (Research Analysts 
and Research Reports) was adopted as FINRA Rule 2241 (Research Analysts 
and Research Reports)).\19\
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    \19\ See Rule Conversion Chart, available at http://www.finra.org/industry/finra-rule-consolidation.
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    FINRA is proposing similar changes to the Series 86 and 87 
selection specifications and question banks.
    Finally, FINRA is proposing to make other changes to the format of 
the content outline, including to the preface, sample questions and 
reference materials.\20\ 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 examinations; (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 examinations.\21\
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    \20\ FINRA is proposing similar changes to the content outlines 
for other representative-level examinations.
    \21\ See Exhibit 3a, Outline Page 2.
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    The number of scored questions on the Series 86 examination will 
remain at 100 questions,\22\ and candidates will continue to have four 
hours and 30 minutes to complete the examination. The number of scored 
questions on the Series 87 examination will remain at 50 questions,\23\ 
and candidates will continue to have one hour and 45 minutes to 
complete the examination. Currently, a score of 73 percent is required 
to pass the Series 86 examination and a score of 74 percent is required 
to pass the Series 87 examination. The passing score for each 
examination will also remain the same.
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    \22\ Consistent with FINRA's practice of including ``pretest'' 
questions on examinations, the Series 86 examination includes 10 
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 
86 examination actually consists of 110 questions, 100 of which are 
scored. The 10 pretest questions are randomly distributed throughout 
the examination.
    \23\ The Series 87 examination includes five additional pretest 
questions. Therefore, the Series 87 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 86 and 87 content outline is available on 
FINRA's website, at www.finra.org. The revised Series 86

[[Page 8561]]

and 87 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 86 and 87 
examinations are consistent with the provisions of Section 15A(b)(6) of 
the Act,\24\ 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,\25\ 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 examinations and to incorporate 
the functions and associated tasks currently performed by a Research 
Analyst.
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    \24\ 15 U.S.C. 78o-3(b)(6).
    \25\ 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 examinations align 
with the functions and associated tasks currently performed by a 
Research Analyst 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 examinations 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.\26\
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    \26\ 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 \27\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\28\ 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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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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-2018-005 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-2018-005. 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-2018-005 and should be submitted 
on or before March 20, 2018.
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    \29\ 17 CFR 200.30b-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03890 Filed 2-26-18; 8:45 am]
 BILLING CODE 8011-01-P