FINRA Requests Comment on a Concept Proposal to Restructure the Representative-Level Qualification Examination Program

Each of these examinations focuses on testing a different set of products and was created in response to a federal law requirement, an identified regulatory need or an industry request.

Six of these examinations—the Series 6, Series 22, Series 42, Series 62, Series 72 and Series 82—are associated with limited representative registrations. The Series 17, Series 37 and Series 38 are limited versions of the Series 7 for individuals who are in good standing as a representative of either the Financial Conduct Authority in the U.K., or with a Canadian stock exchange or securities regulator. Passing these examinations satisfies the examination requirements to obtain the U.K. Securities Representative or Canadian Securities Representative registration. If a representative does not engage in municipal securities activities, registration and qualification as a U.K. Securities Representative or Canadian Securities Representative is equivalent to registration and qualification as a General Securities Representative.

The Order Processing Assistant Representative registration and associated Series 11 examination were created in 1990 for individuals whose sole function is to accept unsolicited orders (other than orders for municipal securities and direct participation programs) from existing customers. These individuals are not permitted to engage in any other activities requiring registration or to receive commissions. In addition, this is a standalone registration category in that an individual registered as an Order Processing Assistant Representative cannot be registered in any other registration category. Therefore, if an individual who is registered as an Order Processing Assistant Representative wants to move into another registered category, he or she must terminate his or her Order Processing Assistant Representative registration to obtain that new registration.

The remaining five representative-level examinations are not related to sales activities. These are the:

In addition, the staff consulted with a number of outside groups, FINRA advisory committees and other self-regulatory organizations (SROs) to gather feedback on an alternative examination structure that would achieve the objectives noted above.

As a result of this review and consultation process, FINRA is proposing to change its representative-level qualification examination program by creating a new structure consisting of a general knowledge examination called the Securities Industry Essentials Examination, or SIE, and a set of specialized knowledge examinations. Under this new structure, all individuals interested in pursuing employment as representative-level registrants would take the SIE. Individuals would not have to be associated with a FINRA member firm to be eligible to take the SIE. However, passing the SIE alone would not qualify an individual for registration with FINRA. An individual who has passed the SIE would also need to pass the appropriate specialized knowledge examination associated with the registration category pertaining to his or her job function to be eligible for registration with FINRA. If following an individual's registration with a firm, the job functions for which the individual is registered change at that firm and he or she needs to become registered in an additional or alternative representative-level position, he or she would not need to pass the SIE again. Rather, the registered individual would need to pass only the appropriate specialized knowledge examination for the additional or alternative representative-level position.

Securities Industry Essentials Examination (SIE)

The securities industry has become increasingly complex and sophisticated over the past 30 years. It is increasingly important for industry professionals to have a broad knowledge of the fundamental concepts and rules of the securities industry. The proposed SIE would bring together this subject matter into a single examination.

The SIE would assess basic product knowledge; the structure and function of the securities industry markets, regulatory agencies and their functions; and regulated and prohibited practices. FINRA has prepared a draft SIE content outline for the purpose of gathering comment. The draft outline contains four proposed major topic areas. The first, "Knowledge of Capital Markets," focuses on topics such as types of markets and offerings, broker-dealers and depositories, and economic cycles. The second, "Understanding Products and Their Risks," covers securities products at a high level as well as associated investment risks. The third, "Understanding Trading, Customer Accounts and Prohibited Activities," focuses on accounts, orders, settlement and prohibited activities. The final section, "Overview of the Regulatory Framework," encompasses topics such as SROs, registration requirements and specified conduct rules. The draft SIE Content Outline is attached as Appendix A.

FINRA anticipates that the SIE would include between 75 and 100 questions. FINRA intends for the questions to cover a broad range of industry content areas reflecting the diversity of regulatory agencies, securities products and regulated practices. The SIE content, examination length and passing score would be determined through the use of testing industry standards used to develop examinations and would include advice from a committee of individuals active in the securities industry.

Eligibility to Take the SIE

FINRA is proposing to permit individuals who are not associated with firms, including members of the general public, to take the SIE. Currently, only individuals associated with FINRA member firms are eligible to take FINRA qualification examinations. FINRA has received feedback that employment with a member firm would be more accessible if individuals were able to pass an introductory knowledge examination prior to becoming an associated person. FINRA believes that expanding who is eligible to take an examination will enable prospective securities industry professionals to demonstrate to prospective employers a basic level of knowledge prior to a job application. In addition, FINRA believes this approach would allow for more flexibility and career mobility within the securities industry.

As is the case today, associated persons taking the SIE and any specialized knowledge examination would be subject to the Rules of Conduct⁴ and the current waiting periods for retaking a failed exam.⁵ Further, individuals taking the SIE who are not associated persons would have to agree to be subject to the same Rules of Conduct and waiting periods for retaking a failed exam.

Expiration of SIE Results

FINRA believes the knowledge covered by the SIE would be less likely to change than the content covered by the specialized knowledge examinations. For example, the definition of a stock or the purpose of an SRO is content that is not likely to change in the short term. Consequently, FINRA is proposing that a passing result on the SIE would be valid for four years.

The following examples illustrate the application of the four-year period to different individuals:

The following examples further illustrate the interplay between the SIE and the specialized knowledge examinations with respect to a registered representative who leaves the securities industry:

Specialized Knowledge Examinations

To register as a new representative with FINRA, an associated person of a member firm would need to take and pass the SIE and a specialized knowledge examination appropriate to the desired registration. As noted above, an individual does not have to be associated with a member firm to take the SIE, but the individual must have passed the SIE within four years prior to passing the specialized knowledge examination. Individuals must be associated with a member firm to be eligible to take a specialized knowledge examination. Subject to the exceptions described below, each specialized knowledge examination would correspond to an existing representative-level examination, such as the current Series 7 examination, and would test knowledge of concepts and rules specific to the associated registration category. FINRA would consult with committees of subject matter experts from the industry to update the content outlines and develop specialized knowledge examinations excluding the content covered on the SIE.

FINRA is proposing to develop specialized knowledge examinations for the following representative categories:

FINRA anticipates that each specialized knowledge examination would be shorter than the current qualification examination that it would replace. For example, the specialized Series 7 examination for General Securities Representatives would likely include 100 to 150 questions instead of the 250 questions on the current Series 7 examination and the specialized Series 6 examination for Investment Company and Variable Contracts Products Representatives would likely include 50-75 questions instead of the 100 questions on the current Series 6 examination.⁶ However, the total number of questions on the SIE plus the applicable specialized knowledge examination could be greater than the current examinations.

In addition, under the new structure, individuals seeking registration as an Equity Trader or Research Analyst would no longer be required to first register and qualify as a General Securities Representative or Corporate Securities Representative as currently applicable. Instead, such individuals would need to pass the SIE and corresponding specialized knowledge examination for Equity Trader or Research Analyst. Also, individuals seeking registration in two or more representative-level registrations would experience a net decrease in the total number of questions because the SIE content would be tested only once. For example, an individual who seeks registration as a General Securities Representative and an Investment Banking Representative today would take two examinations, the Series 7 and Series 79, totaling 425 questions. Under the proposed structure, an individual who seeks registration in the same categories would take the SIE, the specialized Series 7 examination and the specialized Series 79 examination, totaling between 300–350 questions.

Examination Retirement

As part of the restructuring, FINRA is proposing to retire the current registration categories of Options Representative, Corporate Securities Representative and Government Securities Representative as well as the associated examinations, the Series 42, Series 62 and Series 72, respectively. Each of these registrations currently allow an individual to sell a subset of the products (e.g., options, common stocks and corporate bonds, government securities) permitted to be sold by a General Securities Representative. In recent years, however, the utility of these registrations has diminished as a result of technological, regulatory and business practice changes. This is evidenced by the low annual volume for each of these examinations and the relatively low number of individuals who currently hold these registrations. Under the proposal, an individual who wants to engage in activities represented by these registration categories would register as a General Securities Representative.

However, an individual registered in any of these categories at the time of the effective date of the proposal would be able to maintain his or her registration, provided that if the individual then terminates that registration and the registration remains terminated for more than two years, he or she would not be able to reregister in that category.

Foreign Examinations

FINRA is considering retiring the U.K. Securities Representative registration and associated Series 17 examination and the Canadian Securities Representative registrations and associated Series 37 and Series 38 examinations. However, FINRA is conducting an analysis of the relevant U.K. and Canadian registration and qualification requirements to determine whether there is sufficient overlap between the SIE and these registration and qualification requirements, so as to permit them to act as exemptions to the SIE. If FINRA determines that such exemptions are appropriate based on its review, individuals with the applicable U.K. or Canadian registrations and qualifications would need to pass only an appropriate specialized knowledge examination to register with FINRA for the function in which they intend to engage. FINRA believes that this approach would provide individuals who are associated with member firms and hold foreign registrations with more flexibility to obtain any FINRA representative-level registration.

If FINRA were to adopt this approach, an individual registered as a U.K. Securities Representative or Canadian Securities Representative at the time of the effective date of the proposal would be able to maintain his or her registration. However, if the individual then terminates that registration for more than two years, he or she would not be able to reregister in that category. If such individual wishes to reregister with FINRA, the individual would be required to register as a General Securities Representative and pass the SIE and the specialized Series 7 examination. As described above, FINRA may determine that an individual's U.K. or Canadian registrations and qualifications qualify as an alternative to the SIE, in which case the individual in the example above would only have to pass the specialized Series 7 examination.

Order Processing Assistant Representative Examination

The Series 11 examination qualifies an individual to function as an Order Processing Assistant Representative. In recent years, the utility of this registration category has diminished as technological advances and changes in industry practice have reduced the need for Order Processing Assistant Representatives. As a result, the volume of candidates taking the Series 11 has diminished and today less than 200 member firms employ one or more Order Processing Assistant Representatives. Therefore, FINRA is proposing to retire the Order Processing Assistant Representative registration category and associated Series 11 examination.

If FINRA were to retire the Order Processing Assistant Representative registration category and Series 11 examination, an individual registered in this category at the time of the effective date of the proposal would be able to maintain his or her registration. However, if the individual then terminates that registration and the registration remains terminated for more than two years, the individual would not be able to reregister in that category.

Proposed Examination Structure at a Glance

The following table illustrates the proposed changes to the representative-level examinations for those representative categories that FINRA is proposing to retain.
 

Current Registration Category (and CRD Designation)	Scope of Activities	Current Examination(s)	Proposed Examination(s)
Investment Company and Variable Contracts Products Representative (IR)	No change	Series 6	SIE +Specialized Series 6
General Securities Representative (GS)	No change	Series 7	SIE + Specialized Series 7
Direct Participation Programs Representative (DR)	No change	Series 22	SIE + Specialized Series 22
Equity Trader (ET)	No change	Series 7 or Series 62 + Series 55	SIE + Specialized Series 55
Investment Banking Representative (IB)	No change	Series 79	SIE + Specialized Series 79
Private Securities Offerings Representative (PR)	No change	Series 82	SIE + Specialized Series 82
Research Analyst (RS)	No change	Series 7 + Series 86 (Part I: Analysis) + Series 87 (Part II: Regulatory Administration and Best Practices)	SIE + Specialized Series 86 (Part I: Analysis) + Specialized Series 87 (Part II: Regulatory Administration and Best Practices)
Operations Professional (OS)	No change	Series 99	SIE + Specialized Series 99

The chart above does not include those registration categories that FINRA is considering retiring.

Current Representative Registrants

Under the proposal, representative-level registrants who are registered, or had been registered within the past two years, prior to the effective date of the proposal would be eligible to maintain those registrations without being subject to any additional requirements.⁷ Further, such individuals, with the exception of an Order Processing Assistant Representative, would be considered to have passed the SIE in the CRD system, and thus if they wish to register in any additional representative category after the effective date of the proposal, they could do so by taking only the appropriate specialized knowledge examination.⁸ However, with respect to an individual who is not registered on the effective date of the proposal but was registered within the past two years prior to the effective date of the proposal, FINRA will administratively terminate the individual's SIE status in the CRD system if such individual does not register with FINRA within four years from the date of the individual's last registration.

In addition, an individual who had been registered as a representative within the past four years prior to the effective date of the proposal but whose registration lapsed for more than two years,⁹ with the exception of an Order Processing Assistant Representative, would also be considered to have passed the SIE and designated as such in the CRD system. Therefore, if such individual reregisters with a firm after the effective date of the proposal and within four years of having been previously registered, the individual would only need to pass the specialized knowledge examination associated with that registration position. Similarly, if such individual does not register with FINRA within four years from the date of the individual's last registration, FINRA will administratively terminate the individual's SIE status in the CRD system.

Individuals currently registered as principals would not be impacted by this proposal and would have no additional requirements to maintain their principal registrations.

The table below provides examples for the individuals described above who are registered as representatives at the time of the effective date of the proposal or who were previously registered as representatives prior to the effective date of the proposal.
 

Examples	Required Examination(s)	Conditions
An individual who is registered as an Investment Company and Variable Contracts Products Representative at the time the proposal becomes effective and who wishes to maintain that registration.	None	None
An individual who is registered as an Investment Company and Variable Contracts Products Representative at the time the proposal becomes effective subsequently terminates that registration and one year after that termination date reregisters with another member firm in that same registration category.	None	The individual must reregister with a member firm within two years of his or her last registration to avoid having to take any examinations.
An individual who is registered as an Investment Company and Variable Contracts Products Representative at the time the proposal becomes effective subsequently terminates that registration and three years after that termination date reregisters with another member firm in that same registration category.	Specialized Series 6	The individual must reregister with a member firm within four years of his or her last registration to avoid having to take the SIE.
An individual who is registered as an Investment Company and Variable Contracts Products Representative at the time the proposal becomes effective subsequently terminates that registration and three years after that termination date reregisters with another member firm as a Direct Participation Programs Representative.	Specialized Series 22	The individual must reregister with a member firm within four years of his or her last registration to avoid having to take the SIE.
An individual who is registered as an Investment Company and Variable Contracts Products Representative at the time the proposal becomes effective subsequently terminates that registration and five years after that termination date reregisters with another member firm in that same registration category.	SIE and Specialized Series 6	None
An individual who is registered as an Investment Company and Variable Contracts Products Representative at the time the proposal becomes effective remains registered in that category, but also wishes to register as a General Securities Representative.	Specialized Series 7	None
An individual who was last registered as an Investment Company and Variable Contracts Products Representative a year prior to the effective date of the proposal wishes to register in that same category after the effective date of the proposal.	None	The individual must reregister with a member firm within one year of the effective date of the proposal to avoid having to take any examinations.
An individual who was last registered as an Investment Company and Variable Contracts Products Representative three years prior to the effective date of the proposal wishes to register in that same category after the effective date of the proposal.	Specialized Series 6	The individual must reregister with a member firm within one year of the effective date of the proposal to avoid having to take the SIE.
An individual who was last registered as an Investment Company and Variable Contracts Products Representative three years prior to the effective date of the proposal wishes to register as a General Securities Representative after the effective date of the proposal.	Specialized Series 7	The individual must reregister with a member firm within one year of the effective date of the proposal to avoid having to take the SIE.
An individual who was last registered as an Investment Company and Variable Contracts Products Representative five years prior to the effective date of the proposal wishes to register in that same registration category after the effective date of the proposal.	SIE and Specialized Series 6	None

Examination Enrollment and Administration

Under the proposal, member firms would continue to use the CRD system to request registrations for associated persons. Individuals would be able to schedule both the SIE and specialized knowledge examinations for the same day, provided the individual is able to reserve space at one of FINRA's designated testing centers.

To enable individuals who are not associated with a member firm to take the SIE, FINRA is proposing to create an enrollment system that would allow such individuals to enroll and pay the SIE examination fee. This system would also be available to associated persons of member firms who are not required to be registered as representatives, but are asked by their firms to take the SIE.

The enrollment system would provide individuals who are not associated persons with documentation (either in paper or electronic format) of a passing or failing result. In addition, firms would be able to view in the CRD system the passing status of individuals prior to their hiring an individual using the pre-registration functionality in the CRD system. Further, the CRD system would automatically obtain an individual's SIE passing result once a firm submits a Form U4 (Uniform Application for Securities Industry Registration or Transfer) and requests a registration for that individual.

Examination Fees

FINRA will conduct a pricing analysis to determine a fair and reasonable cost for the SIE. Examination fees for the specialized knowledge examinations would be based on a number of factors, including the length of each specialized knowledge examination. FINRA believes that the fee for the specialized knowledge examinations will be lower than that of their current corresponding examinations because the specialized knowledge examinations will be shorter in length. For example, FINRA anticipates that the fee for the specialized Series 7 examination will be less than the fee for the current Series 7 examination.