Document ID: SEC-2018-1584-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-10-12T04:00Z

[Federal Register Volume 83, Number 198 (Friday, October 12, 2018)]
[Notices]
[Pages 51720-51722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22205]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84376; File No. SR-FINRA-2018-036]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Change Relating to Provision of Test Result Information to 
Candidates Who Pass a FINRA Qualification Examination

October 5, 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 September 27, 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 relating to test results information 
on the content outlines of certain FINRA representative- and principal-
level qualification examinations. FINRA is not proposing any textual 
changes to the By-Laws, Schedules to the By-Laws or Rules of FINRA.
    The text of the proposed rule change [sic] 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.

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
    Each FINRA representative- and principal-level qualification 
examination has a minimum score threshold that is necessary for passing 
the examination (also referred to as a ``passing score''). For 
instance, the passing score for the current General Securities 
Representative (Series 7) examination is 72. FINRA determines the 
passing score for each examination based on a process known as standard 
setting, which assesses a number of factors, including industry trends, 
historical examination performance and evaluations of content 
difficulty by a committee of industry professionals who have passed the 
related examination. The passing score for an examination reflects the 
minimum level of knowledge necessary to perform the functions for which 
a candidate is registering.
    A candidate's numerical score on an examination is necessary to 
determine whether the candidate has satisfied the minimum score 
threshold for passing the examination. In addition, if a candidate 
fails to meet the minimum score threshold for passing an examination, 
the candidate's numerical score is relevant in evaluating the extent to 
which the candidate needs additional study time and training and 
whether the candidate should retake the examination.\5\
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    \5\ A candidate who fails an examination is eligible to retake 
that examination after 30 calendar days. However, if a candidate 
fails an examination three or more times in succession within a two-
year period, the candidate is prohibited from retaking that 
examination until 180 calendar days from the date of the candidate's 
last attempt to pass it.
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    Currently, candidates who take a FINRA qualification examination 
receive a test results report of their

[[Page 51721]]

performance at the end of their test session. The test results report 
will indicate a pass or fail status. Further, the report will indicate 
a total score and a score profile for each major section of the content 
outline. Several FINRA representative- and principal-level examination 
content outlines currently include information relating to the test 
results.\6\ This information appears in different places in the content 
outlines. For instance, in the Series 99 examination outline, the 
information appears under the ``Candidates' Test Results'' heading; 
whereas, in the Series 22 examination outline, the information is under 
the ``Introduction'' heading.
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    \6\ These representative-level examinations are the current 
Investment Company and Variable Contracts Products Representative 
(Series 6), General Securities Representative (Series 7), Order 
Processing Assistant Representative (Series 11), United Kingdom 
Securities Representative (Series 17), Direct Participation Programs 
Representative (Series 22), Canadian Securities Representative 
(Series 37 and Series 38), Options Representative (Series 42), 
Securities Trader (Series 57), Corporate Securities Representative 
(Series 62), Government Securities Representative (Series 72), 
Investment Banking Representative (Series 79), Private Securities 
Offerings Representative (Series 82) and Operations Professional 
(Series 99) examinations. These examinations are available to 
candidates who open an examination window in the Central 
Registration Depository (``CRD[supreg]'') system prior to October 1, 
2018. The revised Series 6, 7, 22, 57, 79, 82 and 99 examinations, 
which will be available to candidates who open an examination window 
on or after October 1, 2018, do not include information relating to 
examination results. In addition, the current Series 11, 17, 37, 38, 
42, 62 and 72 will not be available to candidates who open an 
examination window on or after October 1, 2018.
    The principal-level examinations are the Registered Options 
Principal (Series 4), General Securities Sales Supervisor (Series 9 
and Series 10), Supervisory Analyst (Series 16), General Securities 
Principal Sales Supervisor Module (Series 23), General Securities 
Principal (Series 24), Investment Company and Variable Contracts 
Products Principal (Series 26), Financial and Operations Principal 
(Series 27), Introducing Broker-Dealer Financial and Operations 
Principal (Series 28) and Direct Participation Programs Principal 
(Series 39) examinations.
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    Effective October 1, 2018, FINRA is restructuring its 
representative-level qualification examination program.\7\ In 
conjunction with the restructuring, starting on October 1, 2018, FINRA 
will no longer provide a total score and a score profile for each major 
section of the content outline to candidates who pass a qualification 
examination. FINRA believes that providing such information is 
unnecessary once a candidate has met the minimum score threshold for 
passing an examination.\8\ However, FINRA will continue to provide a 
total score and a score profile for each major section of the content 
outline to a candidate who fails an examination. As noted above, such 
information is relevant in evaluating whether the candidate needs 
additional study time and training and whether the candidate should 
retake the examination.
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    \7\ See Regulatory Notice 17-30 (October 2017).
    \8\ Unlike FINRA qualification examinations, some examinations, 
such as the SAT, do not have a minimum score threshold for passing 
the examination (i.e., they do not have a passing score). For such 
an examination, an individual's total score and breakdown of the 
score is necessary in evaluating the individual's performance 
compared to other individuals who took the examination.
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    Consistent with this administrative change, FINRA is reformatting 
the content outlines for the current Series 6, 7, 11, 17, 22, 37, 38, 
42, 57, 62, 72, 79, 82 and 99 examinations as well as for the Series 4, 
9, 10, 16, 23, 24, 26, 27, 28 and 39 examinations to remove references 
to information relating to test results. Instead, such information will 
be available on a dedicated location on FINRA's website.
Availability of Content Outlines
    The revised content outlines will be available on FINRA's 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.
2. Statutory Basis
    FINRA believes that the proposed changes to the examination content 
outlines are consistent with the provisions of Section 15A(b)(6) of the 
Act,\9\ 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,\10\ which authorizes FINRA to prescribe standards of training, 
experience, and competence for persons associated with FINRA members. 
FINRA is proposing an administrative change relating to test results 
information on the content outlines, without compromising the 
qualification standards. In addition, the proposed rule change 
streamlines the content outlines by moving test results information, 
which currently appears in different places on the outlines, to a 
dedicated location on the FINRA website.
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    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 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.
Economic Impact Assessment
Economic Baseline
    Currently, candidates who take a FINRA qualification examination 
receive a total score and score break down regardless of whether they 
pass or fail their examination. These examinations are designed to 
demonstrate basic proficiency around a subject matter.
    Anecdotally, FINRA is aware that candidates approach the test with 
different objectives; specifically, some candidates seek to achieve the 
highest possible score while others seek only to ensure that they 
achieve a score sufficient to pass the examination.
Economic Impact
    Beginning on October 1, 2018, FINRA will no longer provide score 
information to candidates who pass a qualification examination. A 
candidate will receive score information only if the candidate did not 
pass the examination. In conjunction with this change, the proposed 
rule change revises the impacted content outlines to remove references 
to information relating to score information.
Impact on Individuals
    The absence of score information for candidates who pass a 
qualification examination neither imposes additional costs on, nor 
provides additional benefits to, non-passing candidates. The continued 
availability of the failing scores and score profiles will continue to 
benefit candidates who want to use this information to decide whether 
to retake the examination and if so, what areas they should focus on 
when studying for future examinations.
    For passing candidates, the lack of score information affects the 
information set available to them, and thus may impact them in 
different ways. For example, candidates may use the information 
provided today in a variety of contexts related to their employment, 
including negotiating compensation, seeking future employment or 
demonstrating areas of particular strength. However, FINRA knows of no 
established evidence that these scores reliably predict future outcomes 
related to employment success.\11\ Further,

[[Page 51722]]

FINRA qualification examinations are not designed to provide 
information beyond demonstration of basic proficiency. For these 
reasons, comparisons of test scores across candidates may not be 
appropriate.\12\
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    \11\ In Do Investors Have Valuable Information About Brokers?, 
Qureshi and Sokobin demonstrate that examination scores are not 
informative for predicting future customer harm when used in 
conjunction with other relevant public data (available at: http://www.finra.org/industry/chief-economist).
    \12\ The Standard for Educational and Psychological Testing 
published by the American Education Research Association, American 
Psychological Association, and National Council on Measurement in 
Education have established that ``[i]f validity for some common or 
likely interpretation for a given use has not been evaluated, or if 
such an interpretation is inconsistent with available evidence, that 
fact should be made clear and potential users should be strongly 
cautioned about making unsupported interpretations.''
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    Nevertheless, to the extent that test scores are used by 
individuals and others today, restricting the information may impose 
certain costs. For individuals, these costs can vary from time and 
effort to differentiate themselves, to direct monetary costs if a test 
score would have improved their compensation or position. Regardless of 
its predictive ability, where parties today rely on the details of 
passing scores to make decisions and would make a different judgment in 
the absence of such information, the change may result in an economic 
transfer away from high-scoring individuals towards others.
Impact on Other Users of the Information
    The economic impact to others is fundamentally related to the 
extent to which candidates share passing score information with current 
or prospective employers and the reliability of such scores as a signal 
in the contexts for which they are being used.
    In situations where passing scores are misleading and cause users 
to make inefficient or ineffective decisions, the elimination of this 
information may lead to benefits through better decision making. In 
situations where passing scores are not misleading but are 
uninformative, they add noise to the decision-making process. However, 
noisy information should not cause consistent bias in the aggregate. 
Finally, in situations where passing scores are viewed as providing 
valuable information in decision making, the elimination of this 
information may result in the need for an alternative process and, in 
turn, result in additional costs.

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 \13\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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-2018-036 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-2018-036. 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 a.m. and 3 
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. 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-2018-036 and should be submitted on or before November 2, 2018.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22205 Filed 10-11-18; 8:45 am]
 BILLING CODE 8011-01-P