83 FR 4375 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the New Securities Industry Essentials Examination

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 20 (January 30, 2018)

[Federal Register Volume 83, Number 20 (Tuesday, January 30, 2018)]
[Notices]
[Pages 4375-4377]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-01678]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82578; File No. SR-FINRA-2018-002]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the New Securities Industry Essentials 
Examination

January 24, 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 January 12, 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 ``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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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 Industry EssentialsTM 
(SIETM) examination.\4\ FINRA is not proposing any textual 
changes to the By-Laws, Schedules to the By-Laws or Rules of FINRA.
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    \4\ FINRA also is establishing the SIE question bank. 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)(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.
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    The SIE content outline is attached.\5\ The SIE selection 
specifications have been submitted to the Commission under separate 
cover with a request for confidential treatment pursuant to SEA Rule 
24b-2.\6\
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    \5\ The Commission notes that the content outline is attached to 
the filing, not to this Notice.
    \6\ 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 the 
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. 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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    \7\ 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.\8\ The 
rule change, which will become effective on October 1, 2018,\9\ 
restructures the examination program into a more efficient format 
whereby all new representative-level applicants will be required to 
take a general knowledge examination (the SIE) and a tailored, 
specialized knowledge examination (a revised representative-level 
qualification examination) for their particular registered role. 
Individuals are not required to be associated with a FINRA

[[Page 4376]]

member to be eligible to take the SIE examination. However, passing the 
SIE examination alone will not qualify an individual for registration 
with FINRA. To be eligible for registration, an individual must also be 
associated with a firm, pass an appropriate qualification examination 
for representative or principal and satisfy the other requirements 
relating to the registration process.
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    \8\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
    \9\ 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.\10\ 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.\11\
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    \10\ Each of the current representative-level examinations 
covers general securities knowledge, with the exception of the 
Research Analyst (Series 86 and 87) examinations.
    \11\ In conjunction with this proposed rule change, FINRA also 
is filing with the Commission the content outlines for the revised 
representative-level qualification examinations.
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    FINRA developed the SIE examination in consultation with a 
committee of industry representatives and representatives of several 
other self-regulatory organizations (``SROs''). Beginning on October 1, 
2018, new applicants seeking to register as representatives must pass 
the SIE examination and a revised representative-level qualification 
examination, such as the revised General Securities Representative 
(Series 7) examination, appropriate to their job functions at the firm 
with which they are associating before their registrations can become 
effective.\12\
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    \12\ FINRA Rule 1220(b) sets forth each representative-level 
registration category and applicable qualification examination.
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SIE Content Outline
    As noted above, FINRA is proposing to move the general securities 
knowledge currently covered on the representative-level qualification 
examinations to the SIE examination. For example, FINRA Rule 3220 
(Influencing or Rewarding Employees of Others) (the Gifts Rule) will 
now be tested on the SIE examination, rather than on the 
representative-level examinations.
    The SIE content outline is divided into four sections. The 
following are the four sections, denoted Section 1 through Section 4, 
with the associated number of questions:
    Section 1: Knowledge of Capital Markets, 12 questions;
    Section 2: Understanding Products and Their Risks, 33 questions;
    Section 3: Understanding Trading, Customer Accounts and Prohibited 
Activities, 23 questions; and
    Section 4: Overview of the Regulatory Framework, 7 questions.
    Each section includes the essential areas of general knowledge. 
There are four areas (1.1-1.4) associated with Section 1; \13\ two 
areas (2.1-2.2) associated with Section 2; \14\ three areas (3.1-3.3) 
associated with Section 3; \15\ and two areas (4.1-4.2) associated with 
Section 4.\16\ For example, one such area of knowledge (subsection 1.3) 
covers economic factors, such as the Federal Reserve Board's impact on 
business activity and market stability.\17\ Further, subsection 2.1 
covers knowledge of the characteristics of the specified securities 
products, such as voting rights associated with equity securities.\18\ 
In addition, each of the four sections lists the applicable laws, rules 
and regulations related to the areas of knowledge. These include 
applicable federal securities laws as well as FINRA rules and rules of 
other SROs. The SIE selection specifications and question bank cover 
the topics in the content outline.
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    \13\ See Exhibit 3a, Outline Pages 3-5. The outline is attached 
as Exhibit 3a to the 19b-4 form.
    \14\ See Exhibit 3a, Outline Pages 6-9.
    \15\ See Exhibit 3a, Outline Pages 10-13.
    \16\ See Exhibit 3a, Outline Pages 14-15.
    \17\ See Exhibit 3a, Outline Pages 3-4.
    \18\ See Exhibit 3a, Outline Pages 6-8.
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    The content outline also includes a preface, which provides: (1) An 
overview of the purpose of the examination; (2) a table of contents and 
general information regarding the structure of the examination; and (3) 
general information regarding the administration of the examination, 
including an explanation that a statistical adjustment process known as 
equating is used in scoring the examination.\19\
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    \19\ See Exhibit 3a, Outline Page 2.
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    The number of questions on the SIE examination will be 75 scored 
multiple-choice questions,\20\ and candidates will have one hour and 45 
minutes to complete the examination. FINRA will publish the passing 
score for the SIE examination on its website, at www.finra.org, prior 
to its first administration.
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    \20\ Consistent with FINRA's practice of including ``pretest'' 
questions on examinations, the SIE 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 SIE 
examination actually consists of 85 questions, 75 of which are 
scored. The 10 pretest questions are randomly distributed throughout 
the examination.
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Availability of Content Outline
    The SIE content outline will be made available on FINRA's website 
no later than April 1, 2018.
    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 SIE examination is consistent with the 
provisions of Section 15A(b)(6) of the Act,\21\ 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,\22\ which authorizes 
FINRA to prescribe standards of training, experience, and competence 
for persons associated with FINRA members. The proposed rule change 
will improve the efficiency of FINRA's representative-level examination 
program, without compromising the qualification standards, by moving 
the general securities knowledge content from the representative-level 
examinations to the SIE examination. The proposed rule change also 
establishes a prerequisite qualification examination that associated 
persons of FINRA members must pass, in addition to passing an 
appropriate representative-level examination, to register and function 
as representatives. Finally, the SIE examination is intended to 
safeguard the investing public by helping to ensure that individuals 
registering as representatives have the requisite general securities 
knowledge.
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    \21\ 15 U.S.C. 78o-3(b)(6).
    \22\ 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 SIE

[[Page 4377]]

examination generally covers the same general securities knowledge that 
is currently covered on the representative-level examinations. 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.\23\
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    \23\ 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

    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 \24\ and Rule 19b-
4(f)(6) thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6).
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    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-2018-002 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-2018-002. 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-2018-002 and should be submitted 
on or before February 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01678 Filed 1-29-18; 8:45 am]
BILLING CODE 8011-01-P