Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Research Analyst (Series 86 and 87) Examinations

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on February 9, 2018, Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as “constituting a 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 and Rule 19b-4(f)(1) thereunder, 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

FINRA is proposing revisions to the content outline and selection specifications for the Research Analyst (Series 86 and 87) examinations as part of the restructuring of the representative-level examination program. The proposed revisions also update the material to reflect changes to the laws, rules and regulations covered by the examinations and to incorporate the functions and associated tasks currently performed by a Research Analyst. 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.

The revised Series 86 and 87 content outline is attached. The revised Series 86 and 87 selection specifications have been submitted to the Commission under separate cover with a request for confidential treatment pursuant to SEA Rule 24b-2.

The text of the proposed rule change is available on FINRA's website at http://www.finra.org,, at the principal office of FINRA and at the Commission's Public Reference Room. [sic]

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

Section 15A(g)(3) of the Act 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.

The SEC recently approved a proposed rule change to restructure the FINRA representative-level qualification examination program. The rule change, which will become effective on October 1, 2018, restructures the examination program into a new format whereby all new representative-level applicants will be required to take a general knowledge examination (the Securities Industry Essentials or SIE ^TM) and a tailored, specialized knowledge examination (a revised representative-level qualification examination) for their particular registered role.

The restructured program eliminates duplicative testing of general securities knowledge on the current representative-level qualification examinations by moving such content into the SIE examination. The SIE examination will test fundamental securities-related knowledge, including knowledge of basic products, the structure and function of the securities industry, the regulatory agencies and their functions and regulated and prohibited practices, whereas the revised representative-level qualification examinations will test knowledge relevant to day-to-day activities, responsibilities and job functions of representatives.

Currently, an individual registering as an equity Research Analyst must satisfy the General Securities Representative co-requisite registration and pass the Research Analyst (Series 86 and 87) examinations. The purpose of the current co-requisite is to ensure that Research Analysts have general securities knowledge, because the Series 86 and 87 examinations do not cover such knowledge. As part of the restructuring process, FINRA has eliminated the requirement that individuals registering as Research Analysts satisfy the General Securities Representative co-requisite registration. Instead, individuals registering as Research Analysts will be required to pass the SIE examination, which will cover general securities knowledge, as a co-requisite.

Further, FINRA, in consultation with a committee of industry representatives, undertook a review of the Research Analyst (Series 86 and 87) examinations to revise the Series 86 and 87 content outline to reflect changes to the laws, rules and regulations covered by the examinations and to incorporate the functions and associated tasks currently performed by a Research Analyst. The proposed change will align the organization of the Series 86 and 87 content outline with the organization of the content outlines of the other revised representative-level examinations. FINRA also is proposing to make other changes to the format of the Series 86 and 87 content outline.

Beginning on October 1, 2018, new applicants seeking to register as Research Analysts must pass the SIE examination as well as the revised Research Analyst (Series 86 and 87) examinations.

Current Content Outline

The Series 86 examination contains the analysis portion of the Research Analyst examinations and tests knowledge of fundamental analysis and valuation of equity securities. The Series 87 examination contains the regulatory portion of the Research Analyst examinations and tests knowledge of applicable rules and regulations pertaining to equity research. The current Series 86 and 87 content outline is divided into four sections. The Series 86 covers two sections and the Series 87 covers the other two sections. The following are the four sections, denoted Section 1 through Section 4, with the associated number of questions:

Series 86

1. Information and Data Collection, 10 questions;

2. Analysis, Modeling and Valuation, 90 questions;

Series 87

3. Preparation of Research Reports, 32 questions; and

4. Dissemination of Information, 18 questions.

In addition, each section includes references to the applicable laws, rules and regulations associated with that section. The current content outline also includes a preface (addressing, among other things, the purpose, administration and scoring of the examination), sample questions and reference materials.

Revised Content Outline

FINRA is proposing to update the content outline to reflect changes to the laws, rules and regulations covered by the examinations and to incorporate the functions and associated tasks currently performed by a Research Analyst. However, FINRA is not proposing to adjust the number of questions on the examinations or to adjust the number of questions assigned to each section on the current outline. Further, the proposed functions match the sections on the current outline. The following are the four major job functions, denoted Function 1 through Function 4, with the associated number of questions:

Series 86

Function 1: Information and Data Collection, 10 questions;

Function 2: Analysis, Modeling and Valuation, 90 questions;

Series 87

Function 3: Preparation of Research Reports, 32 questions; and

Function 4: Dissemination of Information, 18 questions.

Each function also includes specific tasks describing activities associated with performing that function. There are four tasks (1.1-1.4) associated with Function 1; four tasks (2.1-2.4) associated with Function 2; four tasks (3.1-3.4) associated with Function 3; and five tasks (4.1-4.5) associated with Function 4. For example, one such task (Task 1.1) is gathering macroeconomic data. Further, the content outline lists the knowledge required to perform each function and associated tasks (e.g., short- and long-term trends in the economy, demographic information, domestic and international issues). In addition, where applicable, the content outline lists the laws, rules and regulations a candidate is expected to know to perform each function and associated tasks (e.g., FINRA Rule 2241 (Research Analysts and Research Reports)).

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 2711 (Research Analysts and Research Reports) was adopted as FINRA Rule 2241 (Research Analysts and Research Reports)).

FINRA is proposing similar changes to the Series 86 and 87 selection specifications and question banks.

Finally, FINRA is proposing to make other changes to the format of the content outline, including to the preface, sample questions and reference materials. Among other changes, FINRA is proposing to: (1) Reduce the preface to one page of introductory information; (2) streamline details regarding the purpose of the examinations; (3) move the application procedures to FINRA's website; and (4) explain that the passing score is established using a standard setting procedure, and that a statistical adjustment process known as equating is used in scoring the examinations.

The number of scored questions on the Series 86 examination will remain at 100 questions, and candidates will continue to have four hours and 30 minutes to complete the examination. The number of scored questions on the Series 87 examination will remain at 50 questions, and candidates will continue to have one hour and 45 minutes to complete the examination. Currently, a score of 73 percent is required to pass the Series 86 examination and a score of 74 percent is required to pass the Series 87 examination. The passing score for each examination will also remain the same.

Availability of Content Outline

The current Series 86 and 87 content outline is available on FINRA's website, at www.finra.org. The revised Series 86 and 87 content outline will replace the current content outline on FINRA's website, and it will be made available on the website on the date of this filing.

FINRA is filing the proposed rule change for immediate effectiveness. The implementation date will be October 1, 2018, to coincide with the implementation of the restructured representative-level examination program. FINRA will also announce the implementation date of the proposed rule change in a Regulatory Notice.

2. Statutory Basis

FINRA believes that the proposed revisions to the Series 86 and 87 examinations are consistent with the provisions of Section 15A(b)(6) of the Act, 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, 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 examinations and to incorporate the functions and associated tasks currently performed by a Research Analyst.

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 examinations align with the functions and associated tasks currently performed by a Research Analyst 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 examinations more effective. FINRA also provided a detailed economic impact assessment regarding the introduction of the SIE examination and the restructuring of the representative-level examinations as part of the proposed rule change to restructure the FINRA representative-level qualification examination program.

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 and paragraph (f)(1) of Rule 19b-4 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

• Use the Commission's internet comment form ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-FINRA-2018-005 on the subject line.

Paper Comments

• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2018-005. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FINRA-2018-005 and should be submitted on or before March 20, 2018.