Document ID: SEC-2023-0298-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2023-03-16T04:00Z

[Federal Register Volume 88, Number 51 (Thursday, March 16, 2023)]
[Notices]
[Pages 16289-16291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05335]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97104; File No. SR-FINRA-2023-004]

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 86/87) 
Examination

March 10, 2023.
    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 28, 2023, the 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 86/87) exam program, 
including a reduction of the number of scored questions on the Series 
86 exam. The proposed revisions update the material to incorporate the 
functions and associated tasks currently performed by a Research 
Analyst and to reflect the laws, rules, and regulations most relevant 
to these functions and associated tasks. FINRA is also proposing to 
make changes to the format of the content outline to reflect these 
revisions. FINRA is not proposing any textual changes to the By-Laws, 
Schedules to the By-Laws, or Rules of FINRA.
    The revised content outline appears in Exhibit 3a. The Series 86/87 
exam selection specifications have been submitted to the Commission 
under separate cover with a request for confidential treatment pursuant 
to Exchange Act Rule 24b-2.\5\
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    \5\ 17 CFR 240.24b-2; FINRA also is proposing corresponding 
revisions to the Series 86/87 question bank. Based on instruction 
from the Commission, 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 FINRA is not filing the question bank 
for review. See Letter from Belinda Blaine, Associate Director, 
Division of Market Regulation, SEC, to Alden S. Adkins, Senior Vice 
President and General Counsel, NASD Regulation Inc., dated July 24, 
2000. The question bank is available for the Commission's review.
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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.

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 Exchange Act \6\ authorizes FINRA to 
prescribe standards of training, experience, and competence for persons 
associated with FINRA members. In accordance with this provision, FINRA 
has developed exams 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 exams to determine whether revisions are necessary or 
appropriate in view of changes pertaining to the subject matter covered 
by the exams.
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    \6\ 15 U.S.C. 78o-3(g)(3).
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    FINRA Rule 1220(b)(6) (``Research Analyst'') requires an associated 
person whose primary job function is to provide investment research and 
who is primarily responsible for the preparation of the substance of an 
equity research report,\7\ or whose name appears on an equity research 
report, to be registered and qualified as a Research Analyst.\8\ An 
associated person registering as Research Analyst after October 1, 
2018, shall, prior to or concurrent with such registration, pass the 
general knowledge co-requisite Securities Industry Essentials (SIE) 
Exam and the Series 86/87 exam, or obtain a waiver.\9\ Rather than pass 
both the Series 86 and Series 87 exams, an associated person may obtain 
a waiver from the analytical portion (Series 86 exam) upon written 
request (pursuant to the FINRA Rule 9600 Series) and verification that 
the applicant has passed:
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    \7\ See Rule 2241(a)(11).
    \8\ See Rule 1220(b)(6).
    \9\ See Rule 1220(b)(6)(B) (``Qualifications'').
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    (i) Levels I and II of the CFA Examination; or
    (ii) if the applicant functions as a research analyst who prepares 
only technical research reports as defined in paragraph (b)(6) of Rule 
1220, Levels I and II of the Chartered Market Technician (``CMT'') 
Examination; and
    (iii) has either functioned as a research analyst continuously 
since having passed the Level II CFA or CMT

[[Page 16290]]

Examination or applied for registration as a Research Analyst within 
two years of having passed the Level II CFA or CMT Examination.\10\
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    \10\ See Rule 1220(b)(6)(B) (``Qualifications'').
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    FINRA has created Qualification Exam Content Committees to advise 
FINRA's Testing and Continuing Education Department regarding the 
content of all qualification exams. Committee members are drawn from 
the industry and self-regulatory organization staff.\11\ In 
consultation with the appropriate committee of industry 
representatives, FINRA recently reviewed the Series 86/87 exam program. 
As a result of this review, FINRA is proposing to revise the content 
outline to incorporate the functions and associated tasks currently 
performed by a Research Analyst and to reflect the laws, rules, and 
regulations most relevant to these functions and associated tasks. 
FINRA is also proposing to make changes to the format of the content 
outline to reflect these revisions.
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    \11\ More information about the Qualification Exam Content 
Committees can be found on FINRA's website at https://www.finra.org/about/governance/ad-hoc-committees.
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Current Outline
    The current content outline is divided into two parts, with each 
part divided further into major functions performed by a Research 
Analyst. The following reflects the two parts, total number of 
questions associated with each part, and major job functions, including 
the allocation of questions among the major job functions:
    Part I. Series 86 (100 questions):
    Function 1: Information and Data Collection (10 questions); and
    Function 2: Analysis, Modeling and Valuation (90 questions).
    Part II. Series 87 (50 questions):
    Function 3: Preparation of Research Reports (32 questions); and
    Function 4: Dissemination of Information (18 questions).
    The current outline describes each function, including specific 
tasks and activities associated with performing that function. The 
current outline also includes a preface addressing the purpose, 
structure, administration and scoring of the exams.
Proposed Revisions
    FINRA is proposing to divide the Series 86 exam into three major 
job functions and to reduce the length of the Series 86 exam from 100 
questions to 85 questions. The Series 87 exam will remain divided into 
two functions with 50 questions total, though the number of questions 
will be reallocated between the two functions of the Series 87 exam. 
The following reflects the proposed revisions:
    Part I. Series 86 (85 questions):
    Function 1: Information and Data Collection (18 questions);
    Function 2: Data Verification and Analysis (28 questions); and
    Function 3: Valuation and Forecasting (39 questions).
    Part II. Series 87 (50 questions):
    Function 4: Preparation of Research Reports (36 questions); and
    Function 5: Dissemination and Marketing of Information (14 
questions).
    Each function includes specific tasks describing activities 
associated with performing that function. There are two tasks (1.1-1.2) 
associated with Function 1; one task (2.1) associated with Function 2; 
three tasks (3.1-3.3) associated with Function 3; two tasks (4.1-4.2) 
associated with Function 4; and two tasks (5.1-5.2) associated with 
Function 5.\12\ For example, one such task (3.3) is ``forecast the 
future valuation of the company and determine any recommendation by 
identifying key catalysts that may alter the price of a stock and 
identifying patterns or events (macro, political, or company-specific) 
that move stock prices and create investment opportunities.'' \13\ 
Further, the content outline lists the knowledge required to perform 
each function and associated tasks (e.g., characteristics of markets, 
factors that could impact the perceived risk of an investment, 
technical analysis, large shareholder exposure, activist investors, 
valuation considerations).\14\ Additionally, 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 the applicable FINRA rules (e.g., FINRA Rule 2241) and SEC 
rules and regulations (e.g., Regulation AC under the Exchange Act).\15\ 
FINRA conducted a job analysis study of Research Analysts,\16\ which 
included the use of a survey, to develop each function and associated 
tasks and update the required knowledge set forth in the revised 
content outline. These functions and associated tasks reflect the day-
to-day activities of a Research Analyst.
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    \12\ See Exhibit 3a, Outline Pages 3-9.
    \13\ See Exhibit 3a, Outline Page 6.
    \14\ See Exhibit 3a, Outline Pages 3-9.
    \15\ See Exhibit 3a, Outline Page 7.
    \16\ FINRA periodically conducts job analysis studies to help 
ensure exams test current job functions and required knowledge of 
registered representatives to perform associated tasks. This is an 
internal process that may include conducting focus panels, 
consulting with the appropriate committees, or surveying registered 
representatives to determine current job functions and associated 
tasks of registered representatives so that FINRA may update exams 
accordingly.
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    In reviewing the results of the survey and the changes to the tasks 
and knowledge required to function as a Research Analyst, FINRA 
believes an 85-question Series 86 exam can sufficiently sample the 
requisite knowledge domain. FINRA looked at the impact of shorter test 
forms on key psychometric properties of the test, including decision 
agreement (the probability that the 85-item version of the test and the 
100-item version yield the same pass-fail result for a given examinee). 
The results show that the move to 85-item test forms will have minimal 
impact on the effectiveness of the Series 86 exam in assessing the 
level of proficiency required of an entry-level Research Analyst. 
Therefore, the 85-question Series 86 exam can reliably assess the level 
of proficiency required of an entry-level Research Analyst. The time 
given to complete the Series 86 exam will remain at four hours and 30 
minutes to continue to ensure candidate performance is not affected by 
time constraints.\17\
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    \17\ The time given to complete the Series 87 exam will also 
remain the same, at one hour and 45 minutes.
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    As noted above, FINRA is also proposing to revise the content 
outline to reflect the laws, rules, and regulations most relevant to 
the functions and associated tasks of a Research Analyst, including 
incorporating FINRA Rule 5280 (``Trading Ahead of Research Reports'') 
in the content outline.\18\
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    \18\ The proposed revisions to the content outline will also 
reflect the removal of FINRA Rule 2220 (``Options Communications'') 
from the content outline because, based on discussions with the 
appropriate committee of industry representatives, this rule is not 
relevant to the functions and associated tasks currently performed 
by Research Analysts.
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    Finally, FINRA is proposing corresponding changes to the Series 86/
87 selection specifications and question bank.
Availability of Content Outline
    The current Series 86/87 exam content outline is available on 
FINRA's website, at www.finra.org/brokerqualifications/exams. The 
revised Series 86/87 exam content outline will replace the current 
content outline on FINRA's website.
    FINRA is filing the proposed rule change for immediate 
effectiveness. FINRA will announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published following 
Commission notice of the filing of the proposed rule change for 
immediate effectiveness.

[[Page 16291]]

2. Statutory Basis
    FINRA believes that the proposed revisions to the Series 86/87 exam 
program are consistent with the provisions of Section 15A(b)(6) of the 
Exchange Act,\19\ 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 Exchange Act,\20\ 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 exam program to 
incorporate the functions and associated tasks currently performed by a 
Research Analyst and to reflect the most relevant laws, rules and 
regulations covered by the exams.
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    \19\ 15 U.S.C. 78o-3(b)(6).
    \20\ 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 revisions will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Exchange Act. The updated exam 
program aligns with the functions and associated tasks currently 
performed by Research Analysts and tests knowledge of the most relevant 
laws, rules, regulations and skills relevant to those functions and 
tasks. As such, the proposed revisions would make the exams 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 \21\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\22\ 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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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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-2023-004 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-2023-004. 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-2023-004 and should be submitted on or before April 6, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-05335 Filed 3-15-23; 8:45 am]
BILLING CODE 8011-01-P