80 FR 64456 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the New Securities Trader Qualification Examination (Series 57)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 205 (October 23, 2015)

[Federal Register Volume 80, Number 205 (Friday, October 23, 2015)]
[Notices]
[Pages 64456-64458]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-26912]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76188; File No. SR-FINRA-2015-042]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the New Securities Trader 
Qualification Examination (Series 57)

October 19, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``SEA'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on October 13, 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 constituting 
a ``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-
4 under the Act,\3\ 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is filing the content outline and selection specifications 
for the new Securities Trader qualification examination (Series 57).\4\ 
FINRA is not proposing any textual changes to the By-Laws, Schedules to 
the By-Laws or Rules of FINRA.
---------------------------------------------------------------------------

    \4\ FINRA also is establishing the Series 57 question bank. 
FINRA is submitting this filing for immediate effectiveness pursuant 
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder, 
and is not filing the question bank. 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 bank is available for SEC 
review.
---------------------------------------------------------------------------

    The Series 57 content outline is attached.\5\ The Series 57 
selection specifications have been submitted to the Commission under 
separate cover with a request for confidential treatment pursuant to 
SEA Rule 24b-2.\6\
---------------------------------------------------------------------------

    \5\ The Commission notes that the content outline is attached to 
the filing, not to this Notice.
    \6\ 17 CFR 240.24b-2.
---------------------------------------------------------------------------

    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 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 \7\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3(g)(3).
---------------------------------------------------------------------------

    The Commission recently approved a proposed rule change to amend 
NASD Rule 1032(f) (Limited Representative--Equity Trader) to replace 
the Equity Trader registration category and qualification examination 
(Series 55) with the Securities Trader registration category and 
qualification examination (Series 57).\8\ The rule provides that 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 a Securities

[[Page 64457]]

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.\9\ In addition, NASD Rule 1032(f) 
provides that in order to register as a Securities Trader, an applicant 
must pass the Series 57 examination. The Series 57 examination will 
qualify an associated person to function as a Securities Trader. There 
is no prerequisite registration requirement for Securities Trader 
registration. 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.\10\ 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.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 75783 (August 28, 
2015), 80 FR 53369 (September 3, 2015) (Order Approving File No. SR-
FINRA-2015-017) (``Approval Order'').
    \9\ There is an exception from the Securities Trader 
registration 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.
    \10\ See NASD Rule 1032(f).
---------------------------------------------------------------------------

    In addition, the Commission approved amendments to NASD Rule 
1022(a) (General Securities Principal) 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.\11\ To 
qualify for registration as a Securities Trader Principal, an 
associated person must be registered as a Securities Trader and pass 
the General Securities Principal qualification examination (Series 24). 
An associated person registered as a Securities Trader Principal 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. In 
this regard, NASD Rule 1022(a) provides 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 the person is separately qualified and registered in another 
appropriate principal registration category, such as the General 
Securities Principal registration category.
---------------------------------------------------------------------------

    \11\ See Approval Order, supra note 8.
---------------------------------------------------------------------------

    FINRA is expecting the national securities exchanges to file 
similar proposed rule changes to replace the Proprietary Trader 
qualification examination (Series 56) with the Series 57 examination in 
their respective registration rules relating to securities trading 
activities. Further, the Series 57 examination will replace the Series 
56 examination for those exchange registration categories, such as the 
Proprietary Trader Principal registration category, where the Series 56 
examination is currently an acceptable prerequisite.
    FINRA developed the Series 57 examination in consultation with a 
committee of industry representatives and representatives of several 
exchanges. The examination is based on the current job functions of a 
Securities Trader and includes elements of the Series 55 and 56 
examinations. The Series 57 content outline covers the laws, rules and 
regulations relevant to securities trading as well as the functions and 
associated tasks performed by a Securities Trader.
Series 57 Content Outline
    The Series 57 content outline is divided into four major job 
functions that are performed by a Securities Trader. The following are 
the four major job functions, denoted Function 1 through 4, with the 
associated number of questions:
    Function 1: Market Overview and Products, 22 questions;
    Function 2: Engaging in Professional Conduct and Adhering to 
Regulatory Requirements, 12 questions;
    Function 3: Trading Activities, 79 questions; and
    Function 4: Maintaining Books and Records and Trade Reporting, 12 
questions.
    The number of questions assigned to each major job function 
reflects the key tasks performed by a Securities Trader.
    Each function also includes specific tasks describing activities 
associated with performing that function. There are three tasks (1.1-
1.3) associated with Function 1; two tasks (2.1-2.2) associated with 
Function 2; three tasks (3.1-3.3) associated with Function 3; and two 
tasks (4.1-4.2) associated with Function 4.\12\ By way of example, one 
such task, Task 4.2, relates to creating, retaining, and reporting 
required records of orders and transactions.\13\ Further, the content 
outline lists the knowledge required to perform each function and 
associated tasks (e.g., in connection with Task 4.2, large trader ID 
and related reporting and monitoring requirements and order execution/
routing information).\14\ 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.\15\ These 
include applicable federal securities laws, as well as FINRA and other 
self-regulatory organization rules and regulations. FINRA conducted a 
job analysis study of Securities Traders, which included the use of a 
survey, in developing each function and associated tasks and the 
required knowledge set forth in the content outline. The functions and 
associated tasks reflect the day-to-day activities of a Securities 
Trader. The Series 57 selection specifications and question bank cover 
the topics in the content outline.
---------------------------------------------------------------------------

    \12\ See Exhibit 3a, Outline Pages 6-13. The Commission notes 
that all references to Exhibit 3a refer to Exhibit 3a to the 
proposed rule change.
    \13\ See Exhibit 3a, Outline Page 13.
    \14\ See Exhibit 3a, Outline Page 13.
    \15\ See Exhibit 3a, Outline Pages 14-36.
---------------------------------------------------------------------------

    The content outline also includes sample questions \16\ and 
reference materials.\17\ In the preface, the content outline includes, 
among other things: (1) A table of contents; (2) details regarding the 
purpose of the examination; (3) eligibility requirements; (4) the 
application procedures; (5) information regarding the structure of the 
examination; (6) details regarding the development and maintenance of 
the content outline and examination; (7) information regarding the 
administration of the examination; (8) an explanation that the passing 
score is determined by FINRA based on a number of factors including 
industry trends, historical exam performance and evaluations of the 
content difficulty by a committee of industry professionals, using a 
standard setting procedure, and that a statistical adjustment process 
known as equating is used in scoring examinations; and (9) an 
explanation that each candidate will receive a score report at the end 
of the test session, which will indicate a pass or fail status and 
include a score profile listing the candidate's performance on each 
major content area covered on the examination.\18\
---------------------------------------------------------------------------

    \16\ See Exhibit 3a, Outline Page 37.
    \17\ See Exhibit 3a, Outline Page 38.
    \18\ See Exhibit 3a, Outline Pages 2-5.
---------------------------------------------------------------------------

    The number of questions on the Series 57 examination will be 125 
scored

[[Page 64458]]

multiple-choice questions,\19\ and candidates will have three hours and 
45 minutes to complete the examination. The passing score will be 70 
percent.
---------------------------------------------------------------------------

    \19\ Consistent with FINRA's practice of including ``pretest'' 
items on qualification examinations, which is designed to ensure 
that new examination items meet acceptable testing standards prior 
to use for scoring purposes, the examination includes 10 additional, 
unidentified pretest items that do not contribute towards the 
candidate's score. Therefore, the examination actually consists of 
135 items, 125 of which are scored. The 10 pretest items are 
randomly distributed throughout the examination.
---------------------------------------------------------------------------

Availability of Content Outline
    The Series 57 content outline is available on FINRA's Web site, at 
http://www.finra.org/industry/qualification-exams.
    FINRA is filing the proposed rule change for immediate 
effectiveness. FINRA proposes to implement the Series 57 examination on 
January 4, 2016. FINRA will announce the proposed rule change and the 
implementation date in a Regulatory Notice.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\20\ 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,\21\ which authorizes 
FINRA to prescribe standards of training, experience, and competence 
for persons associated with FINRA members. FINRA believes that the 
proposed rule change furthers these purposes by establishing the 
qualification examination that individuals, including associated 
persons of FINRA members, must pass to register and function as 
Securities Traders and Securities Trader Principals. The examination is 
intended to safeguard the investing public by helping to ensure that 
individuals registering as Securities Traders, as well as those 
responsible for the supervision of securities trading activities, are 
competent to perform their job functions.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78o-3(b)(6).
    \21\ 15 U.S.C. 78o-3(g)(3).
---------------------------------------------------------------------------

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 new examination aligns with 
the functions and associated tasks currently performed by associated 
persons engaged in securities trading and tests knowledge of the laws, 
rules, regulations and skills relevant to those functions and 
associated tasks.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.

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-2015-042 on the subject line.

Paper Comments

     Send paper comments in triplicate to Robert W. Errett, 
Deputy Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2015-042. 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 
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; 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-2015-042 and should be 
submitted on or before November 13, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26912 Filed 10-22-15; 8:45 am]
 BILLING CODE 8011-01-P