Document ID: SEC-2015-0538-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-03-30T04:00Z

[Federal Register Volume 80, Number 60 (Monday, March 30, 2015)]
[Notices]
[Pages 16713-16716]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-07133]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74568; File No. SR-FINRA-2015-006]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Section 4(c) of Schedule A to the FINRA 
By-Laws To Increase Qualification Examination Fees

 March 24, 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 March 10, 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, 
II, and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as ``establishing or changing a 
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\ 
and Rule 19b-4(f)(2) 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)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 Section 4(c) of Schedule A to the FINRA 
By-Laws to increase qualification examination fees.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

SCHEDULE A TO THE BY-LAWS OF THE CORPORATION

* * * * *
    Section 4--Fees
    (a) through (b) No Change.
    (c) The following fees shall be assessed to each individual who 
registers to take an examination as described below. These fees are in 
addition to the registration fee described in paragraph (b) and any 
other fees that the owner of an examination that FINRA administers may 
assess.

Series 4 Registered Options Principal..........  [$100] $105
Series 6 Investment Company Products/Variable    [$95] $100
 Contracts Representative.
Series 7 General Securities Representative.....  [$290] $305
Series 9 General Securities Sales Supervisor--   [$75] $80
 Options Module.
Series 10 General Securities Sales Supervisor--  [$120] $125
 General Module.
Series 11 Assistant Representative--Order        [$75] $80
 Processing.
Series 14 Compliance Official..................  [$335] $350
Series 16 Supervisory Analyst..................  [$230] $240
Series 17 Limited Registered Representative....  [$75] $80
Series 22 Direct Participation Programs          [$95] $100
 Representative.
Series 23 General Securities Principal Sales     [$95] $100
 Supervisor Module.
Series 24 General Securities Principal.........  [$115] $120
Series 26 Investment Company Products/Variable   [$95] $100
 Contracts Principal.
Series 27 Financial and Operations Principal...  [$115] $120

[[Page 16714]]

 
Series 28 Introducing Broker-Dealer Financial    [$95] $100
 and Operations Principal.
Series 37 Canada Module of S7 (Options           [$175] $185
 Required).
Series 38 Canada Module of S7 (No Options        [$175] $185
 Required).
Series 39 Direct Participation Programs          [$90] $95
 Principal.
Series 42 Registered Options Representative....  [$70] $75
Series 51 Municipal Fund Securities Limited      [$95] $105
 Principal.
Series 52 Municipal Securities Representative..  [$120] $130
Series 53 Municipal Securities Principal.......  [$105] $115
Series 55 Limited Representative--Equity Trader  [$105] $110
Series 62 Corporate Securities Limited           [$90] $95
 Representative.
Series 72 Government Securities Representative.  [$105] $110
Series 79 Investment Banking Qualification       [$290] $305
 Examination.
Series 82 Limited Representative--Private        [$90] $95
 Securities Offering.
Series 86 Research Analyst--Analysis...........  [$175] $185
Series 87 Research Analyst--Regulatory.........  [$125] $130
Series 99 Operations Professional..............  [$125] $130
 

    (1) through (4) No Change.
    (d) through (i) No Change.
* * * * *

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
    The proposed rule change amends Section 4(c) of Schedule A of the 
FINRA By-Laws to increase qualification examination fees. Persons 
engaged in the investment banking or securities business of a FINRA 
member who function as principals or representatives are required to 
register with FINRA in each category of registration appropriate to 
their functions.\5\ Such individuals must pass an appropriate 
qualification examination before their registration can become 
effective. These mandatory qualification examinations cover a broad 
range of subjects regarding financial markets and products, individual 
responsibilities, securities industry rules, and regulatory structure. 
FINRA develops, maintains, and delivers all qualification examinations 
for individuals who are registered or seeking registration with FINRA. 
FINRA also administers and delivers examinations sponsored (i.e., 
developed) by the Municipal Securities Rulemaking Board (``MSRB'') and 
other self-regulatory organizations, the North American Securities 
Administrators Association, the National Futures Association, and the 
Federal Deposit Insurance Corporation.
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    \5\ See NASD Rules 1021(a) and 1031(a), and NASD Rules 1022 and 
1032. See also NASD Rules 1041 and 1050 and FINRA Rule 1230(b)(6) 
regarding the qualification and registration requirements for Order 
Processing Assistant Representatives, Research Analysts and 
Operations Professionals, respectively.
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    FINRA currently administers examinations electronically through the 
PROCTOR[supreg] system \6\ at testing centers operated by vendors under 
contract with FINRA. FINRA charges an examination fee to candidates for 
FINRA-sponsored and co-sponsored examinations to cover the development, 
maintenance and delivery of these examinations. For qualification 
examinations sponsored by a FINRA client and administered by FINRA, 
FINRA charges a delivery fee that represents either a portion of or the 
entire examination fee for the examination.\7\
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    \6\ PROCTOR is a computer system that is specifically designed 
for the administration and delivery of computer-based testing and 
training.
    \7\ The delivery fee represents a portion of the entire 
examination fee when a FINRA client has established an additional 
fee for an examination that it sponsors. For example, the fee to 
take the Series 51 (Municipal Fund Securities Limited Principal) 
examination is currently $155. Of this amount, $95 is the FINRA 
administration and delivery fee, and $60 is the development fee 
determined by the FINRA client, the MSRB. See MSRB Rule A-16.
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    FINRA regularly conducts a comprehensive review of the examination 
fee structure, including an analysis of the costs associated with 
developing, administering, and delivering each examination, so that 
FINRA may better understand whether pricing changes are warranted and 
evaluate the financial condition of each qualification examination 
program. Based on the results of the review, FINRA may propose changes 
to better align the examination fee structure with the costs associated 
with the programs. When changes are warranted, fees are set at levels 
that are expected to meet cost and revenue objectives over a two-to-
three year period to provide firms and examination candidates with a 
predictable cost environment.
    In this regard, the most recent review revealed that certain 
operational costs have increased and, based on current information, 
will continue to increase over the next few years. In particular, these 
increased costs consist of: (1) Fees that vendors charge FINRA for 
delivering qualification examinations through their networks of test 
delivery centers; (2) staff labor associated with the development and 
maintenance of the qualification examinations; and (3) PROCTOR system 
maintenance and enhancement expenses.\8\ FINRA believes that the 
proposed rule change will help to better align the examination program 
fees with these increased costs. Therefore, FINRA is proposing to amend 
Section 4(c) of Schedule A to the FINRA By-Laws to increase the fees 
for the qualification examinations set forth in Section 4(c).
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    \8\ While delivery costs for examinations have increased over 
the last three years, delivery costs for qualification examinations 
are scheduled to stabilize in 2015 and 2016 based on FINRA's 
recently negotiated agreements with vendors that deliver the 
qualification examinations through their networks of test delivery 
centers.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the implementation date of the 
proposed rule change will be April 1, 2015. Specifically, the proposed 
qualification examination fees would become effective for examination 
requests made in the CRD system on or after April 1, 2015.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\9\ which requires, among 
other things, that FINRA rules provide for the equitable

[[Page 16715]]

allocation of reasonable dues, fees and other charges among members and 
issuers and other persons using any facility or system that FINRA 
operates or controls.
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    \9\ 15 U.S.C. 78o-3(b)(5).
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    FINRA believes that the proposed rule change constitutes an 
equitable allocation of fees as the qualification examination fees will 
be assessed only on those individuals who take qualification 
examinations. In addition, all candidates who register for a particular 
qualification examination will be charged the same amount.
    FINRA further believes that the proposed qualification examination 
changes are reasonable because they will more closely align the overall 
examination program fees with the overall costs associated with the 
programs. In this regard, FINRA notes that the last time that it 
increased fees for any of the qualification examinations set forth in 
Schedule A to the FINRA By-Laws was April 2012.\10\ Since that time, 
FINRA's examination program expenses have increased and, based on 
current information, will continue to increase over the next few years. 
Specifically, FINRA has experienced cost increases relating to: (1) 
Fees that vendors charge FINRA for delivering qualification 
examinations through their networks of test delivery centers; (2) staff 
labor associated with the development and maintenance of the 
qualification examinations; and (3) PROCTOR system maintenance and 
enhancement expenses. \11\
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    \10\ See Securities Exchange Act Release No. 66465 (February 24, 
2012), 77 FR 12635 (March 1, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-009).
    \11\ See supra note 8.
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    To better align the fees and costs associated with the examination 
programs, FINRA is proposing modest fee increases. In this regard, 
FINRA notes that no qualification examination fee will increase by more 
than $15 and the majority of examination fees will increase by only $5. 
Accordingly, FINRA believes that the proposed qualification examination 
fee changes are equitably allocated and reasonable.

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 qualification examination fee changes have limited economic 
impacts on the industry.
Economic Impact Assessment
(a) Need for the Rule
    FINRA seeks to set the qualification examination fees in such a 
manner as to meet expected program costs and revenues over a two-to-
three year period in order to provide firms and examination candidates 
with a predicable cost environment. FINRA has determined that 
operational costs for the program have increased since FINRA last 
adjusted the fees in April 2012. FINRA also projects that these 
operational costs will continue to increase. As a result, FINRA has 
determined that a fee increase is needed to better align the 
examination program fees to meet these increased costs.
(b) Economic Baseline
    The current examination fee structure and expected costs associated 
with the examination programs serve as an economic baseline for the 
proposed rule change. Qualification examination fees are charged 
directly to members that act as sponsors for individuals seeking to 
obtain qualifications through the examination programs. While some 
members may choose to absorb these costs directly, other members 
directly pass on the costs of taking qualification examinations to the 
sponsored individual. FINRA's qualification examination program 
expenses have increased over the past three years and are expected to 
continue to rise in the next few years. Specifically, the following 
expenses have increased and are expected to further increase in the 
next few years: (1) Fees that vendors charge FINRA for delivering 
qualification examinations through their networks of test delivery 
centers; (2) FINRA staff labor expenses associated with the development 
and maintenance of the qualification examinations; and (3) technology 
maintenance and enhancement expenses.\12\
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    \12\ See supra note 8.
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    In 2014, the total volume of qualification examinations was 
130,830, sponsored by 2,813 member firms. The average volume per member 
firm was 47 qualification examinations. The median volume per member 
firm was four qualification examinations, as large member firms that 
employed more representatives contributed to the majority of the 
qualification examination enrollments. For example, the top 25 member 
firms with the highest qualification examination enrollments accounted 
for 52% of the total volume with an average of 2,704 enrollments per 
firm. In contrast, 70% of the overall member firms had less than 10 
qualification examination enrollments. Equivalently in 2014, the number 
of persons enrolling for qualification examinations was 95,306, and the 
average number of enrollments per person was 1.4.
    Historically, the fees collected by the qualification examination 
programs have provided a limited but stable contribution to FINRA's 
overall revenue. In the absence of the proposed rule change, the 
qualification examination programs would not be able to meet the target 
contribution margin, in addition to, covering increased costs in the 
coming years.
(c) Economic Impacts
    Assuming stable qualification examination delivery volumes (defined 
by the number and type of qualification examinations provided), the 
contribution margin of the qualification examination programs is 
estimated to reach the target level in 2015 and 2016 if the proposed 
fee increases become effective in April 2015. Compared to 2014, the 
total increase in qualification examination fees is estimated to be 
$0.94 million in 2015 and $1.25 million in 2016. At the individual 
examination level, no qualification examination fee will increase by 
more than $15 and the majority of qualification examination fees will 
increase by $5.
    The increases in the qualification examination fees would impose a 
burden on members or individuals that pay for these examinations. 
Compared to the current fee structure, the average increase in 
qualification examination fees per member firm is estimated to be $334 
in 2015 and $446 in 2016. The median fee increase per member firm is 
estimated to be $34 in 2015 and $45 in 2016, as large member firms are 
expected to account for the majority of the examination enrollments. 
For example, the top 25 member firms with the highest enrollments are 
estimated to have an average increase of $18,459 in 2015 and $24,612 in 
2016. For the member firms with less than 10 enrollments (which 
accounted for 70% of the overall member firms), the average increase 
per firm is estimated to be $26 in 2015 and $35 in 2016. In contrast 
with the dollar amount increases, assuming stable qualification 
examination delivery volumes, the percentage increases in qualification 
examination fees for member firms vary in a narrow range of 3% to 5% 
with an average of 4% in 2015 and 4% to 7% with an average of 5% in 
2016. At the individual level, compared to 2014, the average 
qualification examination fee increase per person is estimated to be 
$10 in 2015 and $13 in 2016.

[[Page 16716]]

    FINRA does not believe that the proposed rule change would impact 
the competition among member firms, those who seek qualifications, or 
to the provision of member services. Based on the economic impact 
assessment, the proposed increases in qualification examination fees 
are limited. Moreover, they do not impose significantly different 
impacts on member firms with different sizes or business models. 
Furthermore, FINRA does not believe that the proposed rule change will 
create any competitive advantage for any individuals as all candidates 
who register for a particular qualification examination will be charged 
the same amount.

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)(2) 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)(2).
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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-2015-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2015-006. 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-2015-006 and should be 
submitted on or before April 20, 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. 2015-07133 Filed 3-27-15; 8:45 am]
 BILLING CODE 8011-01-P