for registration with FINRA via the CRD system. With respect to the
availability of information on individuals who have only taken the SIE,
access to this information would be limited. A firm would be able to
view the passing status of an associated person who is not registering
as a representative and an individual seeking to associate with the
firm using an interface within the CRD system. A firm would also be
able to obtain SIE results for an individual if the firm

submits a Form U4 and requests a registration for that individual. In
addition, FINRA and other SROs that recognize the SIE would be able to
obtain an individual's SIE results.
    IMS agreed that individuals should not have to be associated with a
FINRA member to take the SIE, but it disagreed with the rest of the
proposal. IMS stated that professional proficiency can be maintained
through the use of mandatory CE requirements and that an individual's
qualification status should not expire so long as the individual
completes his or her CE, regardless of whether the individual remains
in the industry.
    FINRA is considering the possibility of whether more frequent CE
could be used to ensure that individuals who leave the industry for a
limited period maintain specified levels of competence and knowledge to
carry out their job functions upon returning to the industry.
    N.I.S. opposed the proposal altogether. It stated, among other
things, that its representatives are currently required to pass the
Uniform State Law Examination (Series 63) and Series 6 examination,
which provide them with the necessary knowledge to perform their
functions, and that requiring its new representatives to also take the
SIE would be time consuming and costly.
B. Scope and Content of the SIE and Specialized Knowledge Examinations
    Monahan & Roth suggested that FINRA add the following topics to the
SIE outline: (1) Overview of other financial industry participants,
such as advisers and portfolio managers; (2) requirements relating to
communications with the public, including categories of communications
and electronic communications; (3) discussion of confidentiality and
privacy; and (4) restrictions relating to borrowing from or lending to
customers. In addition, Monahan & Roth stated that content on the SIE
outline related to customer accounts, such as account types, should be
moved to a specialized knowledge examination relating to general sales
because many firms do not open customer accounts.
    The purpose of the SIE is to establish that an individual has
fundamental securities-related knowledge, including knowledge of the
applicable laws, rules and regulations. Further, the SIE would likely
be limited to 75 scored questions established through the use of
testing industry standards in consultation with a committee of industry
and SRO representatives. While knowledge of other financial industry
participants has general educational value, FINRA does not believe that
testing such knowledge is relevant to the purpose and scope of the SIE.
FINRA expects that the SIE would cover the topic of communications with
the public, confidentiality and privacy of consumer information and
restrictions on borrowing from or lending to customers. FINRA does not
believe that SIE content relating to customer accounts should be
removed. The content relating to customer accounts is essential to
understanding the different types of customers in the securities
industry, such as retail and institutional customers, and a firm's
related obligations.
    SIFMA considered the content of the SIE outline to cover
fundamental securities industry knowledge. However, SIFMA noted that an
individual taking the SIE should not be expected to have detailed
knowledge of the rules listed in the outline, such as the SEC's net
capital rule (SEA Rule 15c3-1), but rather be expected to have a
general awareness of such rules. FSI and ARM had similar comments. Eder
was concerned that the listing of broad rules and rule sets in the SIE
outline, such as SEA Rule 15c3-1 and the MSRB rules, would be confusing
to individuals preparing for the SIE and stated that FINRA should
provide more direction on the scope of the covered topics. CFA
considered the content of the SIE outline to be common knowledge.
However, it recommended that FINRA add content on quantitative concepts
(such as time value of money), how best to serve client investment
needs, and risk management.
    In general, SIE content relating to professional conduct,
characteristics of products and economic factors would be tested in
more detail, whereas other content, such as the net capital rule, would
be tested at a high level. FINRA believes that an understanding of
quantitative concepts is more appropriate for individuals taking a
specialized knowledge examination, such as the specialized Series 79 or
specialized Series 86 examination. With respect to knowledge of client
investment needs, the SIE would cover suitability requirements at a
high level. In addition, FINRA believes that the concept of risk
management is better suited for a representative- or principal-level
examination.
    Lincoln Financial did not consider many of the topics covered in
the SIE outline to be common knowledge to some representatives,
including representatives that do not work at a full-service broker-
dealer. It asked that FINRA develop an outline that focuses on higher
level topics common to all broker-dealers. DCI was concerned that the
SIE covers complex content, such as options and municipal securities,
that most representatives need not master today. SUI noted that the SIE
outline does not cover Exchange-Traded Notes or derivatives in general
(other than options). SIFMA and ARM asked that FINRA solicit comment on
the content of the proposed specialized knowledge examinations through
a Regulatory Notice. PFS noted that the number of questions on the SIE
should be reduced and determined by testing industry standards.
    FINRA is developing the SIE with input from a committee that
includes representatives from a broad spectrum of small, mid-sized and
large firms. Based on the committee's feedback as well as the comments
received from the other commenters, FINRA believes that the SIE
content, including general coverage of options and municipal
securities, represents broad-based knowledge of the securities
industry. The SIE content would cover Exchange-Traded Notes. However,
the content on derivatives would be limited to a general knowledge of
options, which is the most common derivative. Consistent with testing
industry standards, the specialized knowledge examinations would be
developed with input from committees of industry representatives who
have expertise on the covered subject matters based on their day-to-day
roles, responsibilities and job functions. Further, consistent with
FINRA's practice regarding examination-related filings, the specialized
knowledge examinations would be filed with the SEC for immediate
effectiveness. FINRA determined the number of questions on the SIE,
which likely will be 75 questions, based on testing industry standards
for establishing test reliability.
C. Expiration Period of the SIE and Specialized Knowledge Examinations
    Eder and CFA agreed with the proposed four-year expiration period
for the SIE. CAI stated that a four-year or longer period may be
appropriate if the SIE will test fundamental concepts, but if the
content of the SIE is more likely to change or be updated a shorter
period, such as three years, may be appropriate. SUI stated that four
years is a reasonable length of time and that five years should be the
absolute maximum period. SIFMA and Wells Fargo suggested that the SIE
period be extended to five years. They also requested that the
expiration period for the specialized knowledge examinations, which is
two years as

proposed, be aligned with the SIE and extended to five years. SIFMA
noted that if FINRA extends the time period to five years, individuals
who are not associated with a member during the five-year period could
satisfy a CE requirement to maintain their proficiency. ARM requested
that FINRA consider a six-year period for the SIE and a five-year
period for the specialized knowledge examinations.
    Based on the content covered on the SIE, FINRA continues to believe
that a passing result on the SIE should be valid for four years. In
addition, FINRA believes that the specialized knowledge examinations
should be subject to a two-year expiration period similar to the
current examinations. However, as noted above, FINRA is considering the
possibility of extending the two-year expiration period through the use
of more frequent CE.
D. Elimination of Registration Categories and Associated Examinations
    SUI recommended that FINRA maintain the Options Representative
registration category and develop a specialized knowledge examination
for individuals advising the public on options trading, similar to the
Canadian model. SUI also stated that FINRA should retain the Canadian
Securities Representative registration categories and the associated
examinations so that individuals have an understanding of the different
legal frameworks in which they operate. Alternatively, SUI asked that
if FINRA grandfathers existing Canadian Securities Representatives,
FINRA should allow individuals who terminate their registrations a
period of four or five years to re-register as Canadian Securities
Representatives. Further, DCI stated that its business is limited to
activities in which a Corporate Securities Representative may engage,
and it is concerned that the proposed elimination of the Corporate
Securities Representative registration category and associated Series
62 examination might dissuade prospective representatives from joining
the firm if they have to take a more comprehensive examination, such as
the specialized Series 7 examination.
    The overall utility of the Options Representative and Corporate
Securities Representative registration categories has diminished over
the years, which is why FINRA is proposing to eliminate them. For
instance, fewer than five individuals registered as Options
Representatives in 2014. FINRA believes that the Canadian Securities
Representative registration categories should be eliminated and
replaced with an alternative qualification process. Under the proposed
rule change, an individual qualified in Canada would be exempt from
taking the SIE and would be able to register in any registration
category by taking and passing only the applicable specialized
knowledge examination(s). FINRA believes that this alternative approach
would provide individuals qualified in Canada more flexibility to
obtain a FINRA representative-level registration. Further, as noted
above, FINRA is considering the possibility of extending the current
two-year expiration period for registrations.
    Eder suggested that FINRA only retain the Investment Company and
Variable Contracts Products Representative and General Securities
Representative registration categories. FINRA disagrees and notes that
the limited registration categories that FINRA is proposing to retain
continue to have a regulatory purpose. For instance, the Equity Trader
registration category, the predecessor to the Securities Trader
category, was created for individuals engaged in securities trading
activities over-the-counter or on Nasdaq with the view that better
training and qualification of such individuals was necessary. The
Research Analyst registration category was created for associated
persons engaged in research activities in conjunction with FINRA's
research analyst rule, FINRA Rule 2241, addressing conflicts of
interest.
E. Principal-Level Examinations and Other Qualification Examinations
    Several commenters asked that FINRA consider similar changes to the
principal-level examinations.\102\ Tessera further asked that FINRA and
the MSRB consider any duplicative content that may exist on a
principal-level examination for supervisors of Municipal Advisors and
on the current Series 24 examination.
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    \102\ Tessera, SIFMA, Edward Jones, FSI, Wells Fargo and ARM.
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    Monahan & Roth suggested that FINRA also adopt a similar structure
(that is, general knowledge and specialized knowledge examinations) for
the proposed Compliance Officer registration category. In addition,
Monahan & Roth requested that FINRA work with the MSRB to: (1) Add the
Municipal Advisor (Series 50) qualification examination to the list of
proposed specialized knowledge examinations; \103\ (2) grandfather
General Securities Representatives and Municipal Securities Principals
from the requirement to take a specialized Series 50 examination; and
(3) avoid redundancies in developing the content outline of a
specialized Series 50 examination. SIFMA asked that FINRA and the MSRB
align their examination structures consistent with the proposal.
---------------------------------------------------------------------------

    \103\ Tessera made the same comment.
---------------------------------------------------------------------------

    Tessera noted that the current Series 50 examination contains
significant overlap with the current Series 7 examination and Municipal
Advisors that have passed the Series 7 examination should not be
retested on duplicative content that appears on the Series 50
examination.
    Edward Jones encouraged FINRA and NASAA to consider whether the
Uniform Investment Adviser Law Examination (Series 65) could be updated
in conjunction with the specialized Series 7 examination so that
individuals working for registered investment advisers could
demonstrate the necessary knowledge required to work as a registered
representative.
    FINRA is currently evaluating whether the principal-level
examinations could be restructured in a similar manner. FINRA has also
discussed with MSRB staff the possibility of their adoption of the SIE
as a concurrent requirement for the MSRB representative-level
examination, the Municipal Securities Representative (Series 52)
examination, as part of the restructuring, and MSRB staff participate
on the SIE committee. However, FINRA notes that the restructuring is
limited to the representative-level examinations, and it does not
extend to advisory-related examinations, such as the Series 50 or
Series 65 examination.
F. Implementation and Administration
    SIFMA requested that FINRA set a fixed, maximum amount of seat time
for candidates to complete the SIE plus specialized knowledge
examinations. Each of the proposed examinations, including the SIE,
will include a time limit, which will correlate to the number of
questions on each examination. While the SIE will have a fixed time
limit, the time limit on each specialized knowledge examination will
vary because the number of questions on each will vary.
    PFS urged that FINRA continue the practice of allowing candidates
to schedule and take multiple examinations on the same day. SIFMA and
ARM asked that FINRA clarify whether an individual who fails the SIE
would be permitted to take a specialized knowledge examination and the
applicable fees in such situations. Further, with respect to
individuals who schedule the SIE and a specialized knowledge
examination for the same day, FSI suggested that FINRA allow

them to withdraw from taking the specialized knowledge examination
without incurring a fee for the withdrawal.
    An individual who fails the SIE would be allowed to take a
specialized knowledge examination. This would include an individual who
schedules the examinations for the same day. However, such individual's
registration would not be approved in the CRD system until he or she
takes and passes the examinations required for that registration
category. Moreover, if such individual determines not to take a
scheduled specialized knowledge examination, the individual would be
charged a fee for registering to take it.\104\ This process is similar
to the current process for registration categories that allow for
concurrent qualifications, such as the Research Analyst registration
category.
---------------------------------------------------------------------------

    \104\ See also FINRA Rescheduling and Cancellation Policy,
http://www.finra.org/industry/reschedule-or-cancel-your-appointment.
---------------------------------------------------------------------------

    CFA requested that FINRA consider granting waivers to individuals
who are in the process of completing an appropriate professional
qualification, such as the CFA Program. In addition, CFA suggested that
FINRA determine whether foreign qualifications would exempt an
individual from taking a specialized knowledge examination and stated
that its programs have considerable recognition in the United Kingdom
and Canada. CFA also asked that FINRA consider dividing the SIE content
into investment-related content and content that covers the applicable
laws, rules and regulations, and it suggested that FINRA consider
offering a waiver of the investment-related content to individuals who
have passed a college level investments course or have made sufficient
progress towards earning an appropriate professional qualification. CFA
further stated that FINRA may want to consider outsourcing the
development and testing of the laws, rules and regulations content on
the SIE for economic reasons. Moreover, it asked that FINRA recognize
the CFA's programs in granting exemptions from the restructured
representative-level examinations.
    Section 15A(g)(3) of the Act authorizes FINRA to prescribe
standards of training, experience, and competence for persons
associated with FINRA members. FINRA believes that FINRA's current
process for developing examinations, which includes input from
committees of industry and SRO subject matter experts, is an effective
means of developing the content of FINRA examinations and consistent
with FINRA's regulatory authority. Under the proposed rule change,
FINRA would continue to accept requests for waivers of the applicable
qualification examinations and accept, where appropriate, other
standards as evidence of an applicant's qualifications for
registration.\105\
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    \105\ For instance, as noted above, candidates are eligible for
a waiver of the current Series 86 examination if they have passed
Levels I and II of the CFA examination and meet other eligibility
criteria. Moreover, future candidates would be eligible for similar
waivers for the specialized Series 86 examination.
---------------------------------------------------------------------------

    PFS suggested that FINRA shorten the waiting periods for retaking a
failed examination and allow an individual who fails an examination to
retest after seven days and allow an individual who has three
successive examination failures to retest after three months. In
addition, PFS asked that FINRA post and periodically update pass rate
information for each examination, including the first time pass rate,
overall pass rate and the success ratio. PFS also asked that FINRA
delay the implementation date of the proposed rule change until the
third quarter of 2017 to provide the industry adequate preparation
time.
    Similar to the current waiting periods for failed examinations, an
individual who fails the SIE or a specialized knowledge examination
would have to wait 30 calendar days before retaking that particular
examination. Further, pursuant to proposed FINRA Rule 1210.06, if an
individual fails the SIE or a specialized knowledge examination in
three successive attempts within a two-year period, the individual
would have to wait 180 days before retaking that particular
examination. These waiting periods are for test security purposes and
to ensure an examination's effectiveness as a measure of ability. A
firm would be able to obtain a report of examination results for its
associated persons and for individuals seeking to associate with the
firm.
    FINRA had originally proposed to implement the revised structure in
two phases. The first phase would have included the SIE and the
specialized knowledge examinations for the Investment Company and
Variable Contracts Products Representative, the General Securities
Representative and the Investment Banking Representative registration
categories, which represent the highest volume representative-level
examinations. The second phase would have included the remaining
specialized knowledge examinations. As originally proposed, the first
phase would have occurred in the fourth quarter of 2016, and the second
phase during the first half of 2017. Rather than a phased
implementation, FINRA intends to implement the entire revised structure
in March 2018. FINRA believes that a single launch date in 2018 will
provide greater uniformity to the implementation process and provide
firms and examination applicants additional preparation time. In
addition, FINRA will continue to seek industry feedback on the
implementation process, and will consider extending the launch date to
address any operational issues raised by the industry.
    ARM requested that FINRA clarify the application process, including
the applicable form(s), for individuals taking the SIE and whether they
would be subject to the type of disclosures required on the Form U4 and
the process by which FINRA would validate any such information. ARM
further requested that FINRA publish basic guidelines or high-level
requirements so that firms can better manage the expectations of
associated persons seeking waivers.
    Individuals taking the SIE, including associated persons of firms
who are not registering as representatives, would be able to enroll for
the SIE without the need to submit a Form U4, and they would not be
subject to the type of disclosures required on the Form U4. FINRA is
proposing to create an enrollment system that provides access through
an interface in the CRD system to allow individuals who are not
associated persons of a firm, including members of the general public,
to enroll and pay the SIE examination fee. This system would also be
available to associated persons of firms who are not required to
register with FINRA. With respect to the waiver process, FINRA has
published guidelines to assist firms and individuals with this process.
Moreover, FINRA will consider reaching out to the industry on the need
for additional guidelines.
G. Examination Fees and Other Costs
    ICI recommended that, to the extent practicable, the fees for the
proposed examinations not exceed the fees for the current examinations.
FSI noted that a high SIE fee may act as a potential barrier to entry
into the securities industry. CAI also stated that the cost of the SIE
cannot be prohibitive. PFS stated that candidates should not be
required to pay more for examinations simply because the content will
be split into separate examinations. FINRA is undertaking a pricing
analysis to determine a reasonable fee for the SIE and the specialized
knowledge examinations. The total examination

fees for individuals registering in each representative-level category
may vary depending on the fee for the SIE.
    Lincoln Financial asked that FINRA evaluate the costs of additional
study materials and courses resulting from having to take two
examinations as well as technological changes to track the additional
examination requirements. While FINRA does not have data on the costs
of preparing for both the SIE and a specialized knowledge examination,
FINRA believes that the proposed structure has the potential of
lowering the examination preparation costs or keeping the costs the
same as today, because examination applicants will be able to leverage
their existing educational courses in preparing for the SIE and the
specialized knowledge examinations will be shorter in length or the
same length. The cost of developing and maintaining a management system
to track SIE results would primarily fall upon FINRA. Further, a firm
would be able to use the CRD system to track SIE results for its
associated persons and for individuals seeking to associate with the
firm.
    FINRA specifically requested comment on the restructuring
proposal's impact on the allocation of examination fees between members
and examination applicants. SIFMA noted that currently some firms pay
for all of their employees' examination fees and that firms that have
independent contractors generally require the independent contractor to
cover such fees. SIFMA added that, at this stage of the proposal, many
firms do not anticipate an impact on how they allocate examination
fees. CFA observed that allowing individuals who are not associated
persons of firms to take the SIE would likely result in some increase
in the percentage of individuals paying their own fees compared to
individuals whose employers are paying their fees. N.I.S. stated that
its newly-hired representatives pay the current examination fees and
that the proposal would increase the cost to those representatives.
H. Other Comments
    IMS suggested that BrokerCheck should display information on an
individual's grandfathered registrations and waived examinations, and
it should display the individual's professional degrees and
designations on an optional basis. IMS also suggested that all
regulators and auditors of FINRA members should be required to take and
pass qualification examinations within a short period after they are
hired, and that regulators should be allowed to hold such examinations
permanently. FINRA considers these comments to be outside the scope of
the proposed rule change.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be 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_ADDRESS>Please include
File Number SR-FINRA-2017-007 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-2017-007. 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-2017-007 and should be
submitted on or before May 1, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\106\
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    \106\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07046 Filed 4-7-17; 8:45 am]
 BILLING CODE 8011-01-P