SUPPLEMENTARY INFORMATION:

I. Background

A. Accredited Investor Definition

Regulation D ^[1] provides a widely-used set of exemptions from registration under 15 U.S.C. 77a et seq. (the “Securities Act”) for the offer and sale of securities.^[2] Among other things, Regulation D includes the regulatory definition of “accredited investor” in 17 CFR 230.501(a) (“Rule 501(a)”) followed by the three main operative provisions—17 CFR 230.504 (“Rule 504”),^[3] 17 CFR 230.506(b) (“Rule 506(b)”),^[4] and 17 CFR 230.506(c) (“Rule 506(c)”).^[5] The Commission has stated that the “accredited investor” definition under Regulation D is intended to capture persons whose financial sophistication renders the protection of the Securities Act's registration process unnecessary.^[6]

The definition of “accredited investor” is a cornerstone of Regulation D and also plays an important role in other Federal securities law contexts.^[7] Qualifying for accredited investor status is significant because accredited investors may, under Commission rules, participate in investment opportunities that are generally not available to non-accredited investors, such as investments in private companies and offerings by private funds.

Accredited investors are natural persons and entities that come within, or that the issuer reasonably believes come within, any of the enumerated categories contained in Rule 501(a). Natural persons may qualify as accredited investors if they are:

• Any director, executive officer, or general partner of the issuer of the securities being offered or sold or of a general partner of that issuer, pursuant to17 CFR 230.501(a)(4);
• Individuals who have a net worth exceeding $1,000,000 (excluding the value of the individual's primary residence and any indebtedness secured by such residence up to the estimated value of the residence), either alone or with their spouse or spousal equivalent, pursuant to17 CFR 230.501(a)(5);
• Individuals who had an income in excess of $200,000 in each of the two most recent years, or joint income with the individual's spouse or spousal equivalent in excess of $300,000 in each of those years, and have a reasonable expectation of reaching the same income level in the current year, pursuant to17 CFR 230.501(a)(6);
• Individuals who are holders in good standing of one or more professional certifications or designations or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status, pursuant to17 CFR 230.501(a)(10) (“Rule 501(a)(10)”);
• Individuals who are “knowledgeable employees,” ^[8] under the Investment Company Act of 1940 (the “Investment Company Act”),^[9] of the private-fund issuer of the securities being offered or sold, pursuant to 17 CFR 230.501(a)(11); or
• Individuals who are “family clients” of a “family office” ^[10] under the Investment Advisers Act of 1940 (the “Advisers Act”) ^[11] and whose prospective investment in the issuer is directed by such family office in accordance with 17 CFR 230.501(a)(12)(iii), pursuant to 17 CFR 230.501(a)(13) (“Rule 501(a)(13)”).

Various institutions may qualify as accredited investors based on their status alone or on a combination of their status and the amount of their total assets or investments. Institutions that qualify include:

• Banks, savings and loan associations; brokers or dealers registered pursuant to section 15 of the Securities Exchange Act of 1934; ^[12] certain investment advisers; insurance companies; investment companies registered under the Investment Company Act or business development companies as defined in section 2(a)(48) of the Investment Company Act; ^[13] and certain specialized investment ( printed page 63359) companies; ^[14] plans established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5 million; employee benefit plans (within the meaning of the Employee Retirement Income Security Act of 1974 ^[15] ) if a bank, savings and loan association, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million, or, if a self-directed plan, with investment decisions made solely by persons who are accredited investors, pursuant to 17 CFR 230.501(a)(1) (“Rule 501(a)(1)”);
• Any private business development company as defined in section 202(a)(22) of the Advisers Act,^[16] pursuant to 17 CFR 230.501(a)(2) (“Rule 501(a)(2)”);
• Charitable organizations, corporations, business trusts, partnerships, or limited liability companies not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000, pursuant to17 CFR 230.501(a)(3) (“Rule 501(a)(3)”); ^[17]
• Trusts with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in17 CFR 230.506(b)(2)(ii), pursuant to 17 CFR 230.501(a)(7) (“Rule 501(a)(7)”);
• Entities in which all of the equity owners are accredited investors, pursuant to17 CFR 230.501(a)(8) (“Rule 501(a)(8)”);
• Any entity, of a type not listed in Rules 501(a)(1), (2), (3), (7), or (8), not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000, pursuant to17 CFR 230.501(a)(9);
• “Family offices” meeting certain requirements, pursuant to17 CFR 230.501(a)(12) (“Rule 501(a)(12)”); ^[18] and
• Entities that are “family clients” of a “family office” that meets the requirements of Rule 501(a)(12), pursuant to Rule 501(a)(13).

B. Background on Rule 501(a)(10) and Overview of Potential Designations

Rule 501(a)(10) confers accredited investor status on any natural person holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status.^[19] In adopting Rule 501(a)(10), the Commission stated that certain “professional credentials and experience should enable [investors that hold such credentials] to assess investment opportunities, appropriately allocate capital based on their individual circumstances, including whether to reallocate investment capital between private investments and other equivalent-sized investments, and otherwise make appropriately informed decisions regarding their financial interests, including their ability to bear the financial risk.” ^[20]

Rule 501(a)(10) contains the following non-exclusive list of attributes that the Commission will consider in determining whether to designate a professional certification or designation or credential from an accredited educational institution as qualifying for accredited investor status:

• The certification, designation, or credential arises out of an examination or series of examinations administered by a self-regulatory organization or other industry body or is issued by an accredited educational institution, under17 CFR 230.501(a)(10)(i) (“Rule 501(a)(10)(i)”);
• The examination or series of examinations is designed to reliably and validly demonstrate an individual's comprehension and sophistication in the areas of securities and investing, under17 CFR 230.501(a)(10)(ii) (“Rule 501(a)(10)(ii)”);
• Persons obtaining such certification, designation, or credential can reasonably be expected to have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment, under17 CFR 230.501(a)(10)(iii) (“Rule 501(a)(10)(iii)”); and
• An indication that an individual holds the certification or designation is either made publicly available by the relevant self-regulatory organization or other industry body or is otherwise independently verifiable, under17 CFR 230.501(a)(10)(iv) (“Rule 501(a)(10)(iv)”).^[21]

In proposing Rule 501(a)(10), the Commission noted prior recommendations to designate holding certain licenses from the Financial Industry Regulatory Authority, Inc. (“FINRA”) as qualifying natural persons for accredited investor status. However, the proposed initial list did not include the Investment Banking Representative license (“Series 79”) or Research Analyst license (“Series 86 and 87”).^[22] A number of commenters recommended the addition of the Series 79 and/or Series 86 and 87.^[23]

Consistent with the proposal, at the time of adoption of Rule 501(a)(10), the Commission issued an order designating the General Securities Representative license (Series 7), Private Securities Offerings Representative license (Series 82), and Investment Adviser Representative license (Series 65) as qualifying a holder of such licenses in good standing for accredited investor ( printed page 63360) status.^[24] In the Accredited Investor Adopting Release, the Commission expressly noted that “[a]lthough other professional certifications, designations, and credentials, such as other FINRA exams, a specific accredited investor exam, other educational credentials, or professional experience received broad commenter support, we are taking a measured approach to the expansion of the definition . . . . [and] we believe it is appropriate to consider these other credentials after first gaining experience with the revised rules.” ^[25]

The Commission has now had over five years of experience with the initially designated professional licenses. There is no evidence that we are aware of to suggest that the expansion in 2020 of the accredited investor definition to include these types of financially sophisticated investors has created investor protection concerns. Since the adoption of Rule 501(a)(10) and the initial designations, the Commission has received recommendations to further expand the number of investors that qualify as accredited investors under Rule 501(a)(10).^[26] The arguments in some of these recommendations echo the arguments contained in letters from commenters in connection with the adoption of Rule 501(a)(10), which stated that the definition limits access to private investments primarily to those who are wealthy,^[27] have close ties to the issuer,^[28] or have certain jobs in the financial industry.^[29] The Commission has also received petitions for rulemaking requesting changes to the accredited investor definition.^[30]

For the reasons set forth in section II, we believe that holding either a Series 79 or a Series 86 and 87 in good standing would satisfy the standard in Rule 501(a)(10).^[31] Accordingly, as required by Rule 501(a)(10), we are providing notice and an opportunity for public comment on potential designation of the Series 79 or a Series 86 and 87 as qualifying natural persons for accredited investor status.^[32]

II. Discussion

A. Series 79 and Series 86 and 87 Requirements

1. Background

We believe designating holding the Series 79 and holding the Series 86 and 87 as qualifying natural persons for accredited investor status would be consistent with the standard in Rule 501(a)(10) because such licenses meet the non-exclusive attributes the Commission identified in Rule 501(a)(10) as relevant to its consideration of adding additional professional certifications or designations or credentials.

As with the currently designated FINRA licenses, the Series 79 and the Series 86 and 87 are registrations held with FINRA.^[33] In order to hold a Series 79 registration, an individual must ( printed page 63361) fulfill the requisite eligibility requirements and pass the Series 79 exam (the “Series 79 Exam”).^[34] The Series 79 Exam is designed to assess the knowledge and skills that FINRA has determined are necessary “to perform the critical functions of an investment banking representative, including advising on or facilitating debt or equity securities offerings through a private placement or a public offering and mergers and acquisitions.” ^[35]

In order to hold a Series 86 and 87 registration, an individual must fulfill the eligibility requirements and pass both the Series 86 exam (the “Series 86 Exam”) and the Series 87 exam (the “Series 87 Exam”).^[36] The Series 86 and 87 Exams are designed to assess the knowledge and skills that FINRA has determined are necessary “to perform the critical functions of a research analyst, including preparation of written or electronic communications that analyze equity securities and/or companies and industry sectors.” ^[37] FINRA is responsible for developing and scoring each of the Series 79, Series 86, and Series 87 Exams.^[38] Based on information provided by FINRA staff to Commission staff, as of August 2026, we estimate there are approximately 57,000 Series 79 holders and approximately 5,900 Series 86 and 87 holders.

2. Eligibility Requirements

Prior to applying for the Series 79 or the Series 86 and 87, a candidate must be associated with and sponsored by a FINRA member or other applicable self-regulatory organization member firm.^[39] In addition to passing the Series 79 Exam or the Series 86 and 87 Exams, which is discussed in sections II.A.3.i and II.A.3.ii, passing the Securities Investment Essentials Exam (“SIE”) is a co-requisite to obtaining a Series 79 or Series 86 and 87.^[40]

3. Exams

i. Series 79 Exam Contents

Over a two-hour and thirty-minute period, the Series 79 Exam tests investment banking related knowledge and skills through 80 (75 scored and 5 unscored) multiple-choice questions on the following topics:

• Collection, Analysis and Evaluation of Data (approximately 49 percent of the Series 79 Exam): covering, among other things, the financial analysis of companies and industries, including modeling financial performance and determining valuation; the collection of information relating to the financial performance, securities issuances, and transactions of both public and private companies through publicly available data and commercial databases; and performing the due diligence process on companies conducting private or public offerings of securities;
• Underwriting/New Financing Transactions, Types of Offerings and Registration of Securities (approximately 27 percent of the Series 79 Exam): covering, among other things, the structuring of, and rules governing, offerings of securities exempt from registration and the process for and rules governing registered offerings of securities; and
• Mergers and Acquisitions (M&As), Tender Offers and Financial Restructuring Transactions (approximately 24 percent of the Series 79 Exam): covering, among other things, the structuring and execution of both sell-side and buy-side M&A transactions; regulations governing tender offers; and the process for and rules governing financial restructuring, such as bankruptcy.^[41]

ii. Series 86 and 87 Exams

Over a four-hour and thirty-minute period, the Series 86 Exam tests research related knowledge and skills through 95 (85 scored and 10 unscored) multiple-choice questions on the following topics:

• Information and Data Collection (approximately 21 percent of the Series 86 Exam): covering, among other things, gathering (1) macroeconomic data (including knowledge of economic indicators, market forces, fiscal and monetary policy, short- and long-term trends in the economy and domestic and international issues, and key economic drivers that impact the covered industry) and (2) information about the industry sector (including knowledge of current industry status, short- and long-term trends within the industry sector, product demand and profitability assessment, and relationships of companies in the industry sector and peripheral sectors);
• Data Verification and Analysis (approximately 33 percent of the Series 86 Exam): covering, among other things, analyzing the data obtained about companies, the industry sector, competition, and supply and demand in the industry sector, including conducting fundamental analyses; and
• Valuation and Forecasting (approximately 46 percent of the Series 86 Exam): covering, among other things, (1) making financial projections about a company using qualitative and quantitative data (including knowledge of forecasts of key financial statements and evaluation of assumptions and support of the theory based on the data that were analyzed), (2) determining a company's valuation (including knowledge of common metrics used to determine a company's valuation, such as price to earnings, price-to-book, price to free cash flow, debt to EBITDA, discounted cash flow, leverage ratio, and interest coverage ratio), and (3) forecasting the future valuation of a company (including knowledge of characteristics of markets, factors that could impact the perceived risk of an investment, technical analysis, large shareholder exposure, activist investors, and other valuation considerations).^[42]

Over a one-hour and forty-five-minute period, the Series 87 Exam tests research related knowledge and skills through 55 (50 scored and 5 unscored) multiple-choice questions on the following topics: ( printed page 63362)

• Preparation of Research Reports (approximately 72 percent of the Series 87 Exam): covering, among other things, (1) adhering to regulatory requirements in preparing research reports (including knowledge of disclosure requirements, necessary approvals, regulatory and compliance requirements, and conflicts of interest) and (2) preparing various research reports supported by evidence and analysis; and
• Dissemination and Marketing of Information (approximately 28 percent of the Series 87 Exam): covering, among other things, presenting and discussing research with the various individuals and/or groups and disseminating information via various means.^[43]

iii. Exam Administration

To be eligible to take the Series 79 Exam or the Series 86 and 87 Exams, candidates must be associated with a FINRA member firm or other applicable self-regulatory organization member firm, which must submit an application on the candidate's behalf through FINRA's Central Registration Depository.^[44] However, the exams are delivered by a third party.^[45] The fees to take the exams are currently: $395 for the Series 79 Exam, $295 for the Series 86 Exam, and $195 for the Series 87 Exam.^[46] The exams may be taken in-person at designated test centers.^[47] After a candidate is enrolled to take an exam, FINRA provides a 120-day window in which the exams must be taken.^[48] Most test centers are open at least five days a week (except for major holidays) and candidates are able to schedule a time based on appointment availability.

4. Continuing Education

In order to maintain a Series 79 or a Series 86 and 87, a person must complete continuing education, which consists of two elements: the “Regulatory Element,” which FINRA uses to provide training on significant rule changes and regulatory developments relevant to the Series 79 and Series 86 and 87 and must be completed annually; ^[49] and the “Firm Element,” which requires the firm with which the Series 79 or Series 86 and 87 holder is associated to design a program that “enhances the securities knowledge, skills and professionalism [of the Series 79 or Series 86 and 87 holder].” ^[50] The Firm Element requires “broker-dealers to establish a formal training program to keep registered persons . . . up to date on topics related to professional responsibility and to the role, activities or responsibilities of the registered person.” ^[51]

5. Public Verification

FINRA maintains the BrokerCheck website, which is a free tool for the public to research the background and experience of financial advisers and firms, including investment-related licensing information (including industry exams an individual has passed, such as the Series 79 and Series 86 and 87, and what registrations individuals currently hold).^[52]

B. Rationale for Designation

1. Rule 501(a)(10) Generally and Rule 501(a)(10)(i)

We believe it would be appropriate to designate each of the Series 79 and Series 86 and 87 held in good standing as a professional certification qualifying individuals holding such licenses for accredited investor status pursuant to Rule 501(a)(10). The addition of each of the Series 79 and Series 86 and 87 as designated professional certifications would provide two additional knowledge-based means for individuals to qualify as accredited investors while appropriately balancing investor protection concerns.^[53]

Rule 501(a)(10) requires that any professional certifications and designations and other credentials designated as qualifying such holder for accredited investor status be held in good standing.^[54] As with the previously designated FINRA licenses,^[55] we believe that the standards set by FINRA for a Series 79 holder and Series 86 and 87 holder to retain their license in an active status are an appropriate measure of good standing.^[56] Accordingly, licensees that hold inactive, terminated, or suspended licenses would not be considered in good standing.

Rule 501(a)(10)(i) additionally requires that a designated certification, designation, or credential arise out of an examination or series of examinations administered by a self-regulatory organization or other industry body or be issued by an accredited educational institution. As described in section II.A.1, the Series 79 Exam, which is a prerequisite to holding a Series 79, and the Series 86 and 87 Exams, which are prerequisites to holding a Series 86 and 87, are designed and administered by FINRA, which is a self-regulatory organization.^[57]

2. Rules 501(a)(10)(ii) and 501(a)(10)(iii)

Rule 501(a)(10)(ii) states that the Commission will consider whether “[t]he examination or series of examinations is designed to reliably and validly demonstrate an individual's comprehension and sophistication in the areas of securities and investing.” Rule 501(a)(10)(iii) states the Commission will consider whether ( printed page 63363) “[p]ersons obtaining [a] certification, designation, or credential [designated under Rule 501(a)(10)] can reasonably be expected to have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment.”

We believe that the passage of either the Series 79 Exam, or the Series 86 and 87 Exams, would satisfy the objectives of Rule 501(a)(10)(ii). We further believe that the passage of the Series 79 Exam (combined with the satisfaction of the requirements to obtain a Series 79) and the passage of the Series 86 and 87 Exams (combined with the satisfaction of the requirements to obtain a Series 86 and 87) would each satisfy the objectives of Rule 501(a)(10)(iii). As described in more detail in section II.A.3.i, the Series 79 Exam is designed to evaluate a person's knowledge and skill in the area of advising on, or facilitating, debt or equity securities offerings through a private placement or a public offering. In particular, the Collection, Analysis and Evaluation of Data section of the Series 79 Exam tests knowledge and skills related to collecting, analyzing, and evaluating information related to public and private companies' financial performance and prior transactions, modeling financial performance, and determining the valuation of companies. In addition, the Underwriting/New Financing Transactions, Types of Offerings and Registration of Securities section of the Series 79 Exam tests knowledge and skills relating to the process and rules of offering securities that are registered or exempt from registration.

As described in more detail in section II.A.3.ii, the Series 86 and 87 Exams are designed to evaluate a person's knowledge and skill in the area of performing the critical functions of a research analyst, including preparation of written or electronic communications that analyze equity securities and/or companies and industry sectors. Specifically, the Information and Data Collection section of the Series 86 Exam tests knowledge relating to macroeconomic data and information about industry sectors and the Data Verification and Analysis section tests knowledge on analyzing data obtained about companies, industry sectors, competition, and supply and demand. In addition, the Valuation and Forecasting section of the Series 86 Exam tests knowledge related to making financial projections about a company using qualitative and quantitative data, determining a company's valuation, and forecasting the future valuation of a company. The Preparation of Research Reports section of the Series 87 Exam requires understanding of valuation of company stock, earnings analysis, business model analysis, financial position, and quality of management.

We believe that by obtaining a Series 79, which requires passage of the Series 79 Exam, or obtaining the Series 86 and 87, which requires passage of the Series 86 and 87 Exams, such persons will have demonstrated that they have the comprehension and sophistication to evaluate the merits and risks of investment opportunities, and ultimately, appropriately allocate capital based on their individual circumstances, and otherwise make appropriately informed decisions regarding their financial interests.^[58]

Moreover, we believe that the continuing education requirements, which are intended to ensure that Series 79 holders and Series 86 and 87 holders are educated on significant rule changes and regulatory developments, further supports that holders of a Series 79 and holders of a Series 86 and 87 have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment.

3. Rule 501(a)(10)(iv)

Rule 501(a)(10)(iv) states the Commission will consider whether “[a]n indication that an individual holds the certification or designation is either made publicly available by the relevant self-regulatory organization or other industry body or is otherwise independently verifiable.” As described in section II.A.5, the public may use the BrokerCheck website to verify whether any person holds a Series 79 or Series 86 and 87.

C. Economic Considerations

As discussed above, we are considering whether to add each of the Series 79 and the Series 86 and 87 to the list of designated professional certifications, designations, or credentials that would qualify natural persons for accredited investor status under Rule 501(a)(10). Thus, individuals who hold such a license would qualify as accredited investors and would be able to participate in investment opportunities that may not otherwise have been available to them, unless they were already accredited investors based on another criterion. This change could also impact issuers seeking to raise capital.^[59] As with the FINRA licenses already designated under Rule 501(a)(10) (Series 7, Series 65, and Series 82), the designation of holders of either the Series 79 or Series 86 and 87 as accredited investors would have economic effects on investors and issuers that would be consistent with those the Commission discussed in creating the Rule 501(a)(10) designation process in the Accredited Investor Adopting Release.^[60]

It is difficult to quantify how many additional natural persons would qualify as accredited investors because we cannot gauge how many of the holders of these FINRA licenses ^[61] already qualify as accredited investors based on one or more of the other eligibility criteria in Rule 501(a), such as those for net worth, income, and other qualifying professional certifications, designations, or credentials.^[62] Further, it is unclear to what extent any newly eligible accredited investors will choose to participate in exempt offerings.

Issuers are expected to benefit from the expansion of the accredited investor definition under Rule 501(a)(10) through potentially greater capital formation, lower cost of capital, and greater efficiency in raising capital due to an expanded pool of accredited investors (especially for issuers that are small or do not have access to a network of institutional accredited investors or persons with the required net worth or income to qualify as accredited investors).^[63] This change may also benefit issuers in exempt offerings by making it easier and less costly to find ( printed page 63364) and verify accredited investors ( i.e., by reducing search costs).^[64] As discussed in section II.A.5, whether someone holds the Series 79 or Series 86 and 87 could be easily independently verified, which would directly reduce issuers' costs of confirming accredited investor eligibility, relative to verifying income or net worth.^[65] This is expected to benefit issuers and intermediaries in exempt offerings where only accredited investors may be purchasers (such as Rule 506(c)) or where some provisions, such as limits on the number of purchasers or investment limits, are dependent on accredited investor status ( e.g., Rule 506(b), Regulation A, and Regulation Crowdfunding). However, to the extent that issuers would have otherwise pursued additional financing from accredited investors meeting the existing definition or engaged in an offering that is not dependent on accredited investor participation (such as a registered securities offering), the amount of additional capital formation may be limited. Still, issuers may benefit from greater flexibility in how they may raise capital, which could result in some cost savings and a lower cost of capital. For instance, issuers undertaking a Rule 506(b) offering may incur lower costs if all of their purchasers are accredited investors as compared to if not all of their purchasers are accredited investors, as the rule would not require them to furnish the financial and other information prescribed by Rule 502(b) for offerings involving non-accredited investors.^[66] For issuers in Rule 506(c) offerings, verification of accredited investor status based on a credential that is easier to confirm may be less costly than verification of other prongs of the accredited investor definition (such as financial eligibility), reducing their transaction costs.^[67] For issuers that undertake a Tier 2 Regulation A or Regulation Crowdfunding offering, both of which are subject to investment limits for non-accredited investors, having more accredited investors in the offering enables higher investment amounts per investor, which may decrease all-in offering costs.^[68] Issuers choosing among different exempt offering alternatives may choose a Regulation D offering if they have enough prospective investors that meet the accredited investor definition, instead of pursuing a Regulation A or Regulation Crowdfunding offering, potentially lowering their compliance, intermediary, and marketing costs-per-dollar raised. Some issuers choosing between an exempt and a registered offering may choose an exempt offering if they have enough prospective investors that meet the accredited investor definition, instead of pursuing a registered offering.

For investors, the designation of these licenses as a means of becoming an accredited investor could enable more natural persons who would not otherwise meet one of the eligibility criteria in Rule 501(a), such as the income and net worth criteria, to access a broader range of investment options, potentially enhancing their ability to diversify and optimize portfolio allocations.^[69]

However, these investment options generally come without the additional disclosure provided by registration under the Securities Act and could entail greater costs related to illiquidity,^[70] agency costs ( i.e., costs arising from conflicts of interest between investors and managers), adverse selection, and business risk, as compared to investments in the public capital markets. Individual investors' comprehension and sophistication in the areas of securities and investing, and knowledge and experience in financial and business matters, as reflected in having a professional certification or designation or credential under Rule 501(a)(10), increases the likelihood that such individual investors would be capable of evaluating the merits and risks of a prospective investment in an exempt offering and managing such risks. For example, such individuals may be more likely to consider the size of any single investment relative to their overall portfolio and diversify their portfolio.^[71] It is unclear whether additional investment opportunities would improve portfolio efficiency for newly eligible accredited investors.

While individuals incur costs to prepare for and take the Series 79 Exam or Series 86 and 87 Exams, and obtain and maintain an active FINRA license in good standing, we do not expect there to be incremental costs of these licenses being designated as an accredited investor credential under Rule 501(a)(10), since we expect individuals to continue to pursue and maintain these licenses chiefly for professional purposes, rather than to qualify as accredited investors.^[72]

The described effects, including both the benefits and the costs to issuers and investors, may be modest in magnitude, as discussed in detail in the Accredited Investor Adopting Release. First, it is possible that a number of the individuals who would qualify as accredited investors under the potential designation may already qualify as accredited investors based on one or more of the criteria in Rule 501(a).^[73] Second, because any newly eligible individuals may have income and net worth below the currently required thresholds for individual accredited investors, the increase in the capital supply from an individual newly eligible accredited investor would likely be low, and the collective impact would depend on the size of any increase in the number of individual accredited investors.^[74] Third, the effects may be more modest to the extent that some of the newly eligible natural persons may end up not participating in exempt ( printed page 63365) offerings.^[75] Fourth, it is possible that issuers may choose to offer securities to institutional accredited investors, or apply investment minimums (perhaps in an effort to simplify their capitalization table), such that any individual accredited investors participating in exempt offerings are more likely to be those who meet the net worth or income criteria in Rule 501(a). Fifth, any specific effects of this potential change to the accredited investor pool would be partly diluted to the extent that other Commission actions designating other credentials result in expanding the pool of natural persons qualifying as accredited investors based on multiple criteria.

III. Notice

For the reasons set forth herein, we believe that a holder of a Series 79 or Series 86 and 87 would meet the requirements set forth in Rule 501(a)(10). Accordingly, we believe it is appropriate to designate holding the Series 79 and holding the Series 86 and 87 as qualifying natural persons for accredited investor status pursuant to Rule 501(a)(10). We are issuing this notice and providing an opportunity for public comment on such potential designations. We are particularly interested in comments on whether we should designate holding a Series 79 or holding a Series 86 and 87 as qualifying natural persons for accredited investor status pursuant to Rule 501(a)(10), as discussed in this notice, and whether such designation could raise investor protection concerns unique to persons who would be qualified under such designation.

91 FR 63357