[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46898-46900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18880]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72765; File No. SR-FINRA-2014-034]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Revise the Series 23 Examination Program

August 5, 2014.
    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 July 29, 2014, Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by FINRA. 
FINRA has designated the proposed rule change as ``constituting a 
stated policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule'' under Section 
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is filing revisions to the content outline and selection 
specifications for the General Securities Principal Sales Supervisor 
Module (Series 23) examination program.\5\ The proposed revisions 
update the material to reflect changes to the laws, rules and 
regulations covered by the examination and to incorporate the functions 
and associated tasks currently performed by a General Securities 
Principal. In addition, FINRA is proposing to make changes to the 
format of the content outline. FINRA is not proposing any textual 
changes to the By-Laws, Schedules to the By-Laws or Rules of FINRA.
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    \5\ FINRA also is proposing corresponding revisions to the 
Series 23 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)(1) thereunder, and 
is not filing the question bank for review. 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 revised content outline is attached. The Series 23 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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    \6\ 17 CFR 240.24b-2. The Commission notes that the content 
outline is an exhibit to the filing, not to this Notice.
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    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. 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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    NASD Rule 1022(a) (General Securities Principal) sets forth the 
registration requirements for a General Securities Principal.\8\ Among 
other requirements, a person registering as a General Securities 
Principal must pass the General Securities Principal (Series 24) 
qualification examination or an alternative examination. The Series 23 
examination, in combination with the General Securities Sales 
Supervisor (Series 9/10) examination,\9\ is an acceptable qualification 
alternative to the Series 24 examination for associated persons who are 
required to register and qualify as General Securities Principals with 
FINRA. The Series 23 examination tests material from the Series 24

[[Page 46899]]

examination not otherwise tested on the Series 9/10 examination.
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    \8\ See SR-FINRA-2014-035 (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change to Revise the Series 24 
Examination Program) for a discussion of the requirements for a 
General Securities Principal.
    \9\ As a prerequisite to the Series 23 examination, FINRA also 
recognizes the Series 8 examination, the historical equivalent to 
the Series 9/10 examination, and the former Series 12 examination, a 
subset of the Series 9/10 examination omitting questions on options 
and municipal securities.
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    In consultation with a committee of industry representatives, FINRA 
recently undertook a review of the Series 23 examination program. As a 
result of this review, FINRA is proposing to make revisions to the 
content outline to reflect changes to the laws, rules and regulations 
covered by the examination and to incorporate the functions and 
associated tasks currently performed by a General Securities Principal. 
FINRA also is proposing to make changes to the format of the content 
outline.
Current Outline
    The current content outline is divided into five sections. The 
following are the five sections and the number of questions associated 
with each of the sections, denoted Section 1 through Section 5:
    1. Supervision of Investment Banking, Underwriting Activities and 
Research, 30 questions;
    2. Supervision of Trading and Market Making Activities, 24 
questions;
    3. Supervision of Brokerage Office Operations, 12 questions;
    4. Sales Supervision and General Supervision of Employees, 23 
questions; and
    5. Compliance with Financial Responsibility Rules, 11 questions.
    Each section also includes the applicable laws, rules and 
regulations associated with that section. The current outline also 
includes a preface (addressing, among other things, the purpose, 
administration and scoring of the examination), sample questions and 
reference materials.
Proposed Revisions
    FINRA is proposing to divide the content outline into five major 
job functions that are performed by a General Securities Principal. The 
following are the five major job functions, denoted Function 1 through 
Function 5, with the associated number of questions:
    Function 1: Supervision of Registration of the Broker-Dealer and 
Personnel Management Activities, 6 questions;
    Function 2: Supervision of General Broker-Dealer Activities, 26 
questions;
    Function 3: Supervision of Retail and Institutional Customer-
Related Activities, 12 questions;
    Function 4: Supervision of Trading and Market Making Activities, 28 
questions; and
    Function 5: Supervision of Investment Banking and Research, 28 
questions.
    FINRA is also proposing to adjust the number of questions assigned 
to each major job function to ensure that the overall examination 
better reflects the key tasks performed by a General Securities 
Principal. The questions on the revised Series 23 examination will 
place greater emphasis on key tasks such as supervision of registered 
persons, sales practices and compliance.
    Each function also includes specific tasks describing activities 
associated with performing that function. There are two tasks (1.1-1.2) 
associated with Function 1; seven tasks (2.1-2.7) associated with 
Function 2; three tasks (3.1-3.3) associated with Function 3; three 
tasks (4.1-4.3) associated with Function 4; and three tasks (5.1-5.3) 
associated with Function 5.\10\ By way of example, one such task (Task 
2.1) is to develop, implement and update firm's policies, written 
supervisory procedures (WSP) and controls for applicable rules and 
regulations; and implement appropriate monitoring and testing.\11\ 
Further, the outline lists the knowledge required to perform each 
function and associated tasks (e.g., business and regulatory 
requirements for firm's systems and technologies).\12\ In addition, 
where applicable, the outline lists the laws, rules and regulations a 
candidate is expected to know to perform each function and associated 
tasks. These include the applicable FINRA Rules (e.g., FINRA Rule 
2090), NASD Rules (e.g., NASD Rule 2510) and SEC rules (e.g., SEA Rule 
15c1-7).\13\ FINRA conducted a job analysis study of General Securities 
Principals, which included the use of a survey, in developing each 
function and associated tasks and updating the required knowledge set 
forth in the revised outline. The functions and associated tasks, which 
appear in the revised outline for the first time, reflect the day-to-
day activities of a General Securities Principal.
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    \10\ See Exhibit 3a, Outline Pages 6-29. The Commission notes 
that Exhibit 3a is an exhibit to the filing, not to this Notice.
    \11\ See Exhibit 3a, Outline Page 9.
    \12\ See Exhibit 3a, Outline Page 9.
    \13\ See Exhibit 3a, Outline Page 19.
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    As noted above, FINRA also is proposing to revise the content 
outline to reflect changes to the laws, rules and regulations covered 
by the examination. Among other revisions, FINRA is proposing to revise 
the content outline to reflect the adoption of rules in the 
consolidated FINRA rulebook (e.g., NASD Rule 2310 (Recommendations to 
Customers (Suitability), NASD Rule 2212 (Telemarketing) and NASD Rule 
3110 (Books and Records) were adopted as FINRA Rule 2111 (Suitability), 
FINRA Rule 3230 (Telemarketing) and FINRA Rule 4510 Series (Books and 
Records Requirements), respectively)).\14\
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    \14\ See Rule Conversion Chart, available at http://www.finra.org/Industry/Regulation/FINRARules/p085560.
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    FINRA is proposing similar changes to the Series 23 selection 
specifications and question bank.
    Finally, FINRA is proposing to make changes to the format of the 
content outline, including the preface, sample questions and reference 
materials. Among other changes, FINRA is proposing to: (1) Add a table 
of contents; \15\ (2) provide more details regarding the purpose of the 
examination; \16\ (3) provide more details on the application 
procedures; \17\ (4) provide more details on the development and 
maintenance of the content outline and examination; \18\ (5) explain 
that the passing scores are established by FINRA staff, in consultation 
with a committee of industry representatives, using a standard setting 
procedure and that the scores are an absolute standard independent of 
the performance of candidates taking the examination; \19\ and (6) note 
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.\20\
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    \15\ See Exhibit 3a, Outline Page 2.
    \16\ See Exhibit 3a, Outline Page 3.
    \17\ See Exhibit 3a, Outline Page 3.
    \18\ See Exhibit 3a, Outline Page 4.
    \19\ See Exhibit 3a, Outline Page 5.
    \20\ See Exhibit 3a, Outline Page 5.
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    The number of questions on the Series 23 examination will remain at 
100 multiple-choice questions, and candidates will continue to have 2 
hours and 30 minutes to complete the examination. Currently, a score of 
70 percent is required to pass the examination. The passing score will 
remain the same.
Availability of Content Outlines
    The current Series 23 content outline is available on FINRA's Web 
site, at www.finra.org/brokerqualifications/exams. The revised Series 
23 content outline will replace the current content outline on FINRA's 
Web site.
    FINRA is filing the proposed rule change for immediate 
effectiveness. FINRA proposes to implement the revised Series 23 
examination program on October 13, 2014. FINRA will announce the 
proposed rule change and the implementation date in a Regulatory 
Notice.

[[Page 46900]]

2. Statutory Basis
    FINRA believes that the proposed revisions to the Series 23 
examination program are 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. FINRA believes that the proposed 
revisions will further these purposes by updating the examination 
program to reflect changes to the laws, rules and regulations covered 
by the examination and to incorporate the functions and associated 
tasks currently performed by a General Securities Principal.
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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 updated examination aligns 
with the functions and associated tasks currently performed by a 
General Securities Principal and tests knowledge of the most current 
laws, rules, regulations and skills relevant to those functions and 
associated tasks. As such, the proposed revisions would make the 
examination more efficient and effective.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \23\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\24\ 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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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2014-034 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-2014-034. 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-2014-034 and should be 
submitted on or before September 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18880 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P